Security Premium Reserve (section 52)
Hey guys
Welcome back!!!!!
Do you ever hear about security premium? OH what..? You
have heard!!!!!!! But you don’t know
about it.
Don’t worry guys through
this article you are going to know about what is security premium? And how we
record it into accounts? And what companies act says about utilisation of
security premium reserve?
Are you ready to listen? …… Yes!!!!!................ Good!!!!
So listen carefully,
Your
question: What
is security premium in respect of issue of shares?
Me:
listen to me guys, as I talked to you in
my previous articles company issues shares for getting capital, remembered...Yes?
Good!!!!!!
Now listen company fix a issue price for a share it may be equal to
its face value or more than the face value.
(face value means the
book value of share, the value at which company will calculate its share
capital or will provide dividend to shareholders and it is the value which will
be recorded into books of accounts. )
If company fixes the price of share more than the book value
then that extra price will be the “security
premium”. Suppose A ltd issues 100 shares of 10 each at 12 per share then the
extra 2 rupees per share will be the premium. So in this example security
premium will be 100 * 2 =200 rupees.
Sounds
simple!!!!!!
Yes so
simple to understand!!!
Your
question: What will be the accounting
treatment of security premium?
Me :
Security premium will be treated as capital receipts so it will be credited
into books of accounts as per section 52(1) of companies act 2013 and will be
shown under sub head “Reserve &
Surplus” as “security premium reserve” as per Schedule III of Companies Act
2013.
Your
question: How to utilise security premium reserve?
Me:
As per section 52(2) of Companies act 2013, utilisation of security premium
reserve will be done for following purpose:
1) Issuing fully paid bonus shares to the members of the
company.
2) Writing off preliminary expenses.
3) Writing off the expenses on issue of shares and debenture
of the company.
4) Writing off the commission paid on issue of shares and
debentures of the company.
5) Writing off the discount allowed on any issue of shares or
debentures.
6) For purchasing of own shares. Section 68 (Buy back of
shares)
7) In providing for the premium payable on redemption of
preference shares or of any debentures of the company.
Understood???? If yes
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section below. This will keep motivating me.
If you want any video lesson on this topic then feel free to
ask us in comment section or at shivamsir009@gmail.com
if you have any query then also feel free to ask on our comment section.
Thank you
Shivam garg
Team Go Commerce
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