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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.

Utilization of Securities Premium Account

 

Formula of Securities Premium

(Issue price per share – Face value per share) * Number of shares

OR

Total amount received on issue of shares – Total face value of shares issued

illustration:

ABC Pvt. Ltd. issued 1000 shares at 18 per share having a face value of 10 per share.

  • Total amount received by ABC Pvt. Ltd. is = Rs 18,000 (1000*18)
  • Total face value of shares = 10,000 (1000*10)

Thus, In the instant case,

  • Securities premium per share = Rs 8 (18 - 10)
  • Total premium = Rs 8,000 (1000*8)

The said amount of Rs 8000 will be credited to the securities premium account and will be shown under the head reserves and surplus of equity and liabilities. 

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 First and Final Call 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 First and Final Call A/c

(Call money received including premium)

 

Dr.

 

Related


FAQ on treatment of Securities Premium Account under Ind AS 


Section 52 - Application of premiums received on issue of shares


Capital Redemption Reserve Account


 

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Frequently asked questions (FAQs)

When the shares are issued/ redeemed/ forfeited at a premium, the excess amount charged on the face value of the share is called Security Premium Reserve. It is an integral part of other Equity and will be shown under the head reserve and surplus after the capital reserve.

Reserve and surplus are created from undistributed profits for specific purposes which can be used by the company in the future according to their nature and purpose. It will be shown under the heading of "Shareholders Fund" in the "Equity & Liability" side of the balance sheet.


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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.