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Question
Long Answer Question
Describe the purposes for which a company can use ‘Securities Premium Account’
Solution
As per the Section 78 of the Companies Act of 1956, the amount of securities premium can be used by the company for the following activities:
1. For paying up unissued shares of the company to be issued to members (shareholders) of the company as fully paid bonus share,
2. For writing off the preliminary expenses of the company,
3. For writing off the expenses of, or the commission paid or discount allowed on, any issue of shares or debentures of the company,
4. For paying up the premium that is to be payable on redemption of preference shares or debentures of the company.
5. Further, as per the Section 77A, the securities premium amount can also be utilised by the company to Buy-back its own shares.
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Short Answer Question
What are the uses of securities premium?
Alankrit Ltd. purchased machinery of ₹ 10,00,000 from Grand Iron Works Ltd. and paid as follows:
(a) Issued 50,000 Equity Shares of ₹ 10 each at a premium of ₹ 2.
(b) Gave an acceptance of ₹ 3,00,000 payable after 3 months; and
(c) Balance by issuing post-dated cheque of two months of ₹ 1,00,000.
Pass the Journal entries in the books of Alankrit Ltd. and Grand Iron Works Ltd.
JJK Ltd. invited applications for issuing 50,000 equity shares of ₹ 10 each at par. The amount was payable as follows:
| On Application | --- | ₹ 2 per share, |
| On Allotment | --- | ₹ 4 per share; and |
| On First and Final call | --- | Balance Amount. |
The issue was oversubscribed three times. Applications for 30% shares were rejected and money refunded .Allotment was made to the remaining applicants as follows:
| Category | No . of Shares Applied | No. of Shares Allotted |
| I | 80,000 | 40,000 |
| II | 25,000 | 10,000 |
Excess money paid by the applicants who were allotted shares was adjusted towards sums due on allotment .
Deepak, a shareholder belonging to Category I , who had applied for 1,000 shares ,failed to pay the allotment money. Raju, a shareholder holding 100 shares, also failed to pay the allotment money. Raju belonged to Category II. Shares of both Deepak and Raju were forfeited immediately after allotment . Afterwards, first and final call was made and was duly received . The forfeited shares of Deepak and Raju were reissued at ₹11 per share fully paid-up.
Pass necessary journal entries for the above transactions in the books of company.
Ruchi Ltd. issued for public subscription 40,000 Equity Shares of ₹ 10 each at a premium of ₹ 2 per share payable as:
| On application | --- | ₹ 2 per share; |
| On allotment | --- | ₹ 5 per share (including premium), |
| On first call | --- | ₹ 2 per share, |
| On second and final call | --- | ₹ 3 per share. |
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Give necessary Journal entries for the above transactions.
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Based on below information you are required to answer the following question:
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On Application ₹ 2 per share
On Allotment ₹ 3 per share
On First and Final Call ₹ 5 per share
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- To applicants for 40,000 shares - Full
- To applicants for 50,000 shares - 40%
- To applicants for 2,000 shares - Nil
₹ 1,08,000 was realised on account of allotment (excluding the amount carried from application money) and ₹ 2,50,000 on account of call.
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