Question

Write the uses of securities premium received on shares.

Hint:

Securities premium cannot be used for paying dividends because it is a capital profit, not a revenue profit.

Answer 1

Securities premium arises when shares are issued at a price higher than their face value. This amount is kept in the Securities Premium Reserve and can be used only for specific statutory purposes. The important uses are as follows:
1. Issue of fully paid bonus shares to shareholders.
2. Writing off preliminary expenses of the company.
3. Writing off discount or commission on issue of shares or debentures.
4. Providing premium payable on the redemption of preference shares or debentures.