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Question

If preference shares are redeemed at premium, such premium may be provided out of ___________.

A
Share Forfeited A/c
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B
Security Premium A/c
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C
Proceeds of fresh issue of shares
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D
CRR A/c
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Solution

The correct option is C Security Premium A/c

When the company decides to issue shares at a price higher than the nominal value or face value we call it shares issued at a premium. It is quite a common practice especially when the company has a great track record and strong financial performances and standing in the market.

So say the face value of a share is Rs 100/- and the company issues it at Rs 110/-. The share is said to have been issued at a 10% premium. The premium will not make a part of the Share Capital account but will be reflected in a special account known as the Securities Premium Account.


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