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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?
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Verified 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.
Most Upvoted 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 amon...
Securities Premium Account: Explanation and Utilization
The Securities Premium Account is a part of the Shareholders' Equity section of a company's balance sheet. It represents the excess amount received by the company over the face value of its shares during the issuance of securities such as shares or debentures. This account is created to record the premium received on the issuance of securities.
The Securities Premium Account can be utilized for various purposes, including:
To write off the preliminary expenses:
- Preliminary expenses are the costs incurred by a company during its formation and before it starts its operations.
- These expenses include legal fees, registration charges, promotional expenses, and other costs associated with the incorporation of the company.
- By utilizing the Securities Premium Account, a company can offset these preliminary expenses and reduce the burden on its profits.
- Writing off preliminary expenses helps in reducing the accumulated losses and improving the financial position of the company.
To create the General Reserve:
- General Reserve is a part of the Shareholders' Equity that is created to strengthen the financial position of the company.
- It acts as a contingency fund and is used to meet unforeseen expenses, fund future projects, or distribute dividends during periods of financial difficulties.
- Utilizing the Securities Premium Account to create the General Reserve enhances the company's ability to withstand economic downturns and ensures the availability of funds for future growth and expansion.
To pay dividends to the equity shareholders:
- Dividends are the distribution of profits to the shareholders of a company.
- When a company earns profits, it can distribute a portion of these profits as dividends to its equity shareholders.
- By utilizing the Securities Premium Account, a company can supplement its profits and ensure the payment of dividends even during periods of lower profitability.
- This helps in maintaining the confidence of the shareholders and attracting new investors.
To distribute it among the promoters:
- Promoters are the individuals or entities who initiate the formation of a company.
- They are responsible for conceiving the idea, raising capital, and setting up the business.
- Utilizing the Securities Premium Account to distribute funds among the promoters rewards their efforts and incentivizes their involvement in the company's growth.
- This can be done by issuing bonus shares to the promoters, which are fully paid shares issued free of cost.
In conclusion, the Securities Premium Account can be utilized for various purposes, including writing off preliminary expenses, creating the General Reserve, paying dividends to equity shareholders, and distributing funds among the promoters. These utilization options help in improving the financial position of the company, ensuring the availability of funds for future growth, and rewarding stakeholders for their contributions.
The Securities Premium Account is a part of the Shareholders' Equity section of a company's balance sheet. It represents the excess amount received by the company over the face value of its shares during the issuance of securities such as shares or debentures. This account is created to record the premium received on the issuance of securities.
The Securities Premium Account can be utilized for various purposes, including:
To write off the preliminary expenses:
- Preliminary expenses are the costs incurred by a company during its formation and before it starts its operations.
- These expenses include legal fees, registration charges, promotional expenses, and other costs associated with the incorporation of the company.
- By utilizing the Securities Premium Account, a company can offset these preliminary expenses and reduce the burden on its profits.
- Writing off preliminary expenses helps in reducing the accumulated losses and improving the financial position of the company.
To create the General Reserve:
- General Reserve is a part of the Shareholders' Equity that is created to strengthen the financial position of the company.
- It acts as a contingency fund and is used to meet unforeseen expenses, fund future projects, or distribute dividends during periods of financial difficulties.
- Utilizing the Securities Premium Account to create the General Reserve enhances the company's ability to withstand economic downturns and ensures the availability of funds for future growth and expansion.
To pay dividends to the equity shareholders:
- Dividends are the distribution of profits to the shareholders of a company.
- When a company earns profits, it can distribute a portion of these profits as dividends to its equity shareholders.
- By utilizing the Securities Premium Account, a company can supplement its profits and ensure the payment of dividends even during periods of lower profitability.
- This helps in maintaining the confidence of the shareholders and attracting new investors.
To distribute it among the promoters:
- Promoters are the individuals or entities who initiate the formation of a company.
- They are responsible for conceiving the idea, raising capital, and setting up the business.
- Utilizing the Securities Premium Account to distribute funds among the promoters rewards their efforts and incentivizes their involvement in the company's growth.
- This can be done by issuing bonus shares to the promoters, which are fully paid shares issued free of cost.
In conclusion, the Securities Premium Account can be utilized for various purposes, including writing off preliminary expenses, creating the General Reserve, paying dividends to equity shareholders, and distributing funds among the promoters. These utilization options help in improving the financial position of the company, ensuring the availability of funds for future growth, and rewarding stakeholders for their contributions.
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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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