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As per Schedule VI of the Companies Act, 1956, under which of the following heads is ‘Premium on issue of Preference Shares’ shown in the balance sheet of a company?
- a)Miscellaneous expenditure
- b)Debentures
- c)Reserves and surplus
- d)Current liabilities and provisions
Correct answer is option 'C'. Can you explain this answer?
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As per Schedule VI of the Companies Act, 1956, under which of the foll...
In the balance sheet of a company, the 'Premium on issue of Preference Shares' is shown under the head of 'Reserves and surplus'. Here's a detailed explanation of why it is classified under this head:
1. Reserves and surplus: This head in the balance sheet represents the accumulated profits of the company that are not distributed as dividends. It includes various reserves such as general reserves, capital reserves, and specific reserves.
2. Premium on issue of Preference Shares: When a company issues preference shares at a price higher than their face value, the excess amount is called the 'premium'. It is a form of additional consideration received by the company from investors for issuing preference shares.
3. Treatment in the balance sheet: The premium on issue of preference shares is treated as a part of the company's accumulated profits. It is added to the reserves and surplus of the company, reflecting the additional value generated by the issuance of preference shares.
4. Disclosure: The premium on issue of preference shares is disclosed separately in the balance sheet under the head of 'Reserves and surplus'. It is usually shown as a line item within this category, providing transparency to stakeholders about the additional funds received by the company through the issuance of preference shares.
Therefore, as per Schedule VI of the Companies Act, 1956, the 'Premium on issue of Preference Shares' is shown in the balance sheet of a company under the head of 'Reserves and surplus'.
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As per Schedule VI of the Companies Act, 1956, under which of the following heads is ‘Premium on issue of Preference Shares’ shown in the balance sheet of a company?a)Miscellaneous expenditureb)Debenturesc)Reserves and surplusd)Current liabilities and provisionsCorrect answer is option 'C'. Can you explain this answer?
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