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Securities premium account can be utilized for:
  • a)
    To Distribute it among the promoters
  • b)
    To create the General Reserve
  • c)
    To pay the dividend to the equity shareholders
  • d)
    To write off the preliminary expenses
Correct answer is 'D'. Can you explain this answer?
Most Upvoted Answer
Securities premium account can be utilized for:a)To Distribute it amon...
Security Premium can be used for the following purposes:

1. For issuing Bonus Shares to the members of the company.  This means that the the unissued shares of the company will be issued to the shareholders without taking any money from them.  Amount standing at the credit of Security Premium A/c will be used for this purpose.  These shares are issued to each shareholder in proportion to his shareholdings in the company.  

2.  Writing off Preliminary Expenses:  Preliminary expenses are those expenses which are incurred during the formation of the company.  Securities Premium A/c can be used to write off these expenses.  Journal entry for this will be:

   Security Premium A/c  Dr.

      To Preliminary Expenses.

3.  Security Premium A/c can be used to write of the expenses of or the commission paid or discount allowed on any issue of shares or debentures of the company. 

4.  If  a company has to pay premium while redeeming Preference Shares or Debentures, it can utilised the amount standing at the credit of Security Premium A/c for this purpose.  


5. For buying back its own shares (buy back of shares).  In certain circumstances a company can buy its own shares.  In such circumstances Securities Premium A/c may be used to finance this purchase.
Community Answer
Securities premium account can be utilized for:a)To Distribute it amon...
Securities premium is capital gain which can only be utilu for writing off the capital losses.So,writtten off of preliminary expenses is s capital loss written from security premium.
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Securities premium account can be utilized for:a)To Distribute it among the promotersb)To create the General Reservec)To pay the dividend to the equity shareholdersd)To write off the preliminary expensesCorrect answer is 'D'. Can you explain this answer?
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