Question

If forfeited shares are re-issued at a premium, the amount of such premium should be creted to ______________.

• A. Capital Reserve Account
• B. Securities Premium Account
• C. Revenue Reserve Account
• D. Profit & Loss Account

Answer 1

The correct option is B Securities Premium Account

Issue of Shares at Premium:

Shares are said to be issued at premium when they are issued at a price higher than the face value.

The excess of issue price over face value is referred to as ‘share premium’ or ‘security premium’, which is credited to a separate account called ‘securities premium account’.

For example, A Ltd. issues 10,000 shares of face value of ₹ 10 each at ₹ 12 per share. Here ₹ 2 (₹ 12 - ₹ 10) is treated as ‘security premium’.

The amount collected as share premium is disclosed under ‘Reserves and Surplus’ on the liabilities side of the balance sheet.

Section 78 of The Companies Act has laid down the following purposes for which the securities premium can be utilized:

To issue fully paid bonus shares to its members

To write off preliminary expenses of the company

To write off expenses in relation to the issue of shares or debentures of the company

To provide for premium payable on redemption of preference shares and debentures of the company