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Chapter-Buyback of shares Illust-4
Accountancy
Why securities premium used to adjust premium on redemption of preference shares?
Answers (4)
(3) The securities premium account may, notwithstanding anything contained in sub-sections (1) and (2), be applied by such class of companies, as may be prescribed and whose financial statement comply with the accounting standards prescribed for such class of companies under section 133,â?? (a) in paying up unissued equity shares of the company to be issued to members of the company as fully paid bonus shares; or (b) in writing off the expenses of or the commission paid or discount allowed on any issue of equity shares of the company; or (c) for the purchase of its own shares or other securities under section 68.
CA Suraj Lakhotia Admin
(3) The securities premium account may, notwithstanding anything contained in sub-sections (1) and (2), be applied by such class of companies, as may be prescribed and whose financial statement comply with the accounting standards prescribed for such class of companies under section 133,â?? (a) in paying up unissued equity shares of the company to be issued to members of the company as fully paid bonus shares; or (b) in writing off the expenses of or the commission paid or discount allowed on any issue of equity shares of the company; or (c) for the purchase of its own shares or other securities under section 68.
So when a company complies with Accounting Standards, it cannot use securities premium account to provide for premium. So the ideal entry should be to Debit to P&L and not securities premium account.
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