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According to section 78 of the Companies Act, the amount in the Securities Premium A/ c cannot be used for the purpose of
- a)Issue of fully paid bonus shares
- b)Writing off losses of the company
- c)Writing off preliminary expenses
- d)Writing off commission or discount on issue of shares
Correct answer is option 'B'. Can you explain this answer?
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According to section 78 of the Companies Act, the amount in the Securi...
Section 78 of the Companies Act:
According to section 78 of the Companies Act, the amount in the Securities Premium A/ c cannot be used for the purpose of writing off losses of the company.
Detailed Explanation:
Section 78 of the Companies Act specifies the use of the Securities Premium Account, which is a reserve account created when a company issues shares at a premium. The Securities Premium Account represents the excess amount received on the issue of shares over their face value.
The purpose of the Securities Premium Account is to utilize the premium received for specific purposes, as specified by the Companies Act. These purposes include the following:
- Issue of fully paid bonus shares: The amount in the Securities Premium Account can be used to issue fully paid bonus shares to the existing shareholders of the company. Bonus shares are additional shares given to shareholders without any additional payment.
- Writing off preliminary expenses: The amount in the Securities Premium Account can be used to write off preliminary expenses incurred by the company. Preliminary expenses are the expenses incurred in the formation of a company, such as legal fees, registration fees, and promotional expenses.
- Writing off commission or discount on the issue of shares: The amount in the Securities Premium Account can be utilized to write off any commission or discount given on the issue of shares. Commission or discount may be given to underwriters or brokers involved in the share issue process.
However, it is important to note that the amount in the Securities Premium Account cannot be used for the purpose of writing off losses of the company. This means that any losses incurred by the company cannot be offset using the funds in the Securities Premium Account.
Conclusion:
In conclusion, according to section 78 of the Companies Act, the amount in the Securities Premium Account cannot be used for the purpose of writing off losses of the company. The Securities Premium Account can be utilized for other purposes such as issuing fully paid bonus shares, writing off preliminary expenses, and writing off commission or discount on the issue of shares.
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According to section 78 of the Companies Act, the amount in the Securities Premium A/ c cannot be used for the purpose ofa)Issue of fully paid bonus sharesb)Writing off losses of the companyc)Writing off preliminary expensesd)Writing off commission or discount on issue of sharesCorrect answer is option 'B'. Can you explain this answer?
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