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Securities Premium Account

As per sub-section 1 of section 52 of Companies Act, 2013, where a company issues shares at a premium (share price higher than face value or par value), the aggregate amount of the premium received on those shares shall be transferred to a "Securities Premium Account".

  • Balance from this account may be used for the purposes specified in section 52(2) of the companies act.
  • If the account is used for other than the specified purposes,  the provisions of the companies act relating to the reduction of the share capital of a company shall apply as if the securities premium account were the paid-up share capital of the company.
  • Section 52 will not apply where convertible debentures are issued at a premium and are convertible at par. In such cases, the premium collected will be either transferred to the profit and loss account or amortized over the term of debentures.
  • If debentures are issued at par but convertible at a premium, such premium will be transferred to a securities premium account.
  • This account should be shown under the title ‘Equity and Liabilities’ of the balance sheet under the head "Reserves and Surplus".

Utilization of Securities Premium Account

This account may be applied by the company for the following purposes-

(a) towards the issue of unissued shares of the company to the members of the company as fully paid bonus shares;

(b) in writing off the preliminary expenses of the company;

(c) in writing off the expenses of, or the commission paid or discount allowed on, any issue of shares or debentures of the company;

(d) in providing for the premium payable on the redemption of any redeemable preference shares or of any debentures of the company; or

(e) for the purchase of its own shares or other securities under section 68.

 Journal entries for shares issued at Premium

 

A. For Premium Amount called with Application money

(i) Bank A/c

To Share Application A/c

(Money received on application including premium)

Dr.

 

(ii) Share Application A/c

 To Share Capital A/c

To Securities Premium A/c

(Transfer of application money to share capital and securities premium account)

 

Dr.

 

B. Premium Amount called with Allotment Money

(i) Share Allotment A/c

To Share Capital A/c

To Securities Premium A/c

(Amount due on allotment of shares including premium)

Dr.

 

(ii) Bank A/c

 To Share Allotment A/c

(Allotment money received including premium)

 

Dr.

 

C. Premium Amount called with Call Money                 

(i) Share Application A/c

To Share Capital A/c

To Securities Premium A/c

(Amount due on 1st or 2nd call including premium)

Dr.

 

(ii) Bank A/c

To Share Call A/c

(Call money received including premium)

 

Dr.


CA Anand Singh

CA Anand Singh

I am a practising Chartered Accountant with 6 years of experience in Direct and Indirect Taxation, FEMA, Corporate Law and Audit etc.

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