(A) To issue partly paid bonus shares to the extent not exceeding unissued share capital of the company;
(B). Buy back of own shares.
(C). To write-off the expenses of, or commission paid, or discount allowed on any securities of the company;
(D). To pay premium on the redemption of preference shares or debentures of the company.
Choose the correct answer from the options given below:
Understanding Securities Premium Account Uses
The Securities Premium Account, often called the Share Premium Account, is a specific type of capital reserve created when a company issues its shares at a price higher than their nominal (face) value. This excess amount received is credited to the Securities Premium Account. The Companies Act, 2013, in Section 52, specifies the exact purposes for which this account can be utilized. It is crucial to understand these permitted uses for proper financial management and compliance.
What is the Securities Premium Account?
When shares are issued at a premium, the amount received above the face value is credited to the Securities Premium Account. For example, if a company issues 100 shares of a nominal value of 10 each at a premium of 5 per share, the issue price is 15 per share. The total amount received is 100 * 15 = 1500. Out of this, 100 * 10 = 1000 is credited to the Share Capital Account, and the remaining 100 * 5 = 500 is credited to the Securities Premium Account.
Analyzing Allowed Uses of Securities Premium
Let's examine each statement provided in the question to determine if it represents a valid use of the Securities Premium Account according to Section 52 of the Companies Act, 2013.
Validity of Issuing Partly Paid Bonus Shares
Statement (A) suggests using the Securities Premium Account to issue partly paid bonus shares. This is generally not a permitted use. The Act allows the premium to be applied towards issuing fully paid bonus shares, but the specific wording "partly paid bonus shares" and the limitation mentioned make this option invalid as a direct application of premium funds for issuing such shares.
Permitted Use: Buy-back of Own Shares
Statement (B) relates to the buy-back of the company's own shares. Section 68 of the Companies Act, 2013, permits a company to use its free reserves, including the Securities Premium Account, for the buy-back of its shares. Therefore, this is a valid application.
Permitted Use: Writing-off Expenses on Securities
Statement (C) concerns writing off the preliminary expenses, expenses incurred or commission paid on any issue of securities, or the discount allowed on any issue of debentures or preference shares. Section 52(2)(c) explicitly allows the Securities Premium Account to be used for these purposes. This is a valid use.
Permitted Use: Paying Premium on Redemption
Statement (D) involves paying the premium payable on the redemption of any redeemable preference shares or of any debentures of the company. Section 52(2)(d) permits the use of Securities Premium for this purpose. Thus, this is also a valid application.
Summary of Securities Premium Account Usage
Based on the analysis of the Companies Act, 2013, the following are the permitted uses of the Securities Premium Account:
| Purpose | Permitted Use? |
|---|---|
| Issue partly paid bonus shares | No |
| Buy back of own shares | Yes |
| Write-off expenses/commission/discount on securities | Yes |
| Pay premium on redemption of preference shares/debentures | Yes |
Final Answer: Securities Premium Usage
From the analysis, statements (B), (C), and (D) describe valid uses of the Securities Premium Account. Statement (A) is not a permitted use. Therefore, the correct option is the one that includes only (B), (C), and (D).
The correct combination of permitted uses is (B), (C), and (D) only.
Important Questions from Shares
Which of the following distinction(s) is/are not correct between public issue and rights issue?
(A) In public issue, applications for shares are invited from the general public and in rights issue, the shares are offered to existing shareholders.
(B) In public issue there is no question of any over-subscription and in rights issue the shares may be under subscribed or over subscribed leading to prorata allotment.
(C) The price of public issue is generally less than the market price and in rights issue, the price is deliberately made less than the market price.
(D) In a public issue, the communication of the issue is through prospectus or advertisements and in a rights issue the communication is between the company and the existing members of the company.
Choose the most appropriate answer from the options given below:
Match List I with List II:
List I List II (A) Bonus shares (I) Invitation to existing shareholders to purchase additional new shares (B) Demat shares (II) Issue is made to existing members free of charge (C) Right issue (III) Share issues by a company to its employees/directors at a discount for providing know-how (D) Sweat equity share (IV) Shares in electronic form Choose the correct answer from the options given below:
Identify the correct sequence of activities involved in the process of buy back of shares.
A. Letter of offer to the shareholders.
B. Opening of bank account.
C. Approval for Extra-ordinary General Meeting.
D. Convening board meeting.
E. Declaration of Solvency.
Choose the correct answer from the options given below:
Identify the correct statements in context of equity financing.
A. Borrowing limit increases as a consequence of increase in number of shares.
B. Ordinary shares are generally not redeemable.
C. Issue of new shares dilutes the EPS if the profits do not increase immediately in proportion to increase in number of shares.
D. A company is not legally oblidged to pay dividend.
E. Ordinary shares are less riskier from investor's perspective.
Choose the correct answer from the options given below:
Which of the following order is followed in the issue of shares under the "Fixed Price Offer Method"?
A. Issue of a prospectus
B. Receipt by the company of application for share
C. Selection of merchant banker
D. Issue of share certificates
E. Allotment of shares to the applicant
Choose the correct answer from the options given below
