If the debentures are issued at a price higher than the nominal value of the debentures, the premium should be credited to ______________.
If the debentures are issued at a price higher than the nominal value of the debentures, the premium should be credited to ______________.
The correct option is B Securities Premium Account
Securities
Premium Account-
· When debenture is issued at a price more than
its face value, they are said to be issued at a premium.
·
For example: if a debenture of ₹10 is issued at ₹12; ₹2 will be called as premium on that debenture.
· The amount of premium on debenture is a capital
profit so it is credited to a separate account called “Securities Premium
Account” or “Securities Premium Reserve” and it is shown in Balance sheet under
the head “Reserved and Surplus”.
· Though there is no legal restriction on issue of
debenture at premium but there is restriction on utilization of securities
premium a/c.
·
Utilization of securities premium a/c is restricted
to following purposes:
a. Writing
off preliminary expenses
b. Writing
off expenses, discount allowed on issue of shares/debentures or commission paid
on issue of debentures/shares (underwriting commission)
c. Issue
of fully paid bonus shares to equity shareholders
d. Providing
for payment of premium payable on redemption of preference shares or debenture
e.
For buy back of its own shares.
Securities Premium Account-
· When debenture is issued at a price more than its face value, they are said to be issued at a premium.
· For example: if a debenture of ₹10 is issued at ₹12; ₹2 will be called as premium on that debenture.
· The amount of premium on debenture is a capital profit so it is credited to a separate account called “Securities Premium Account” or “Securities Premium Reserve” and it is shown in Balance sheet under the head “Reserved and Surplus”.
· Though there is no legal restriction on issue of debenture at premium but there is restriction on utilization of securities premium a/c.
· Utilization of securities premium a/c is restricted to following purposes:
a. Writing off preliminary expenses
b. Writing off expenses, discount allowed on issue of shares/debentures or commission paid on issue of debentures/shares (underwriting commission)
c. Issue of fully paid bonus shares to equity shareholders
d. Providing for payment of premium payable on redemption of preference shares or debenture
e. For buy back of its own shares.
