Question

Securities Premium cannot be used:

• A. to issue fully paid bonus shares
• B. to write-off preliminary expenses of the company.
• C. to pay premium on the redemption of preference shares or debentures of the company.
• D. to pay dividend to the shareholders of the company

Hint:

Remember, securities premium is a capital reserve and cannot be distributed as dividends; it is mainly used for issuing bonus shares, writing off expenses, or paying redemption premiums.

Answer 1

The Correct Option is D

Step 1: Understanding Securities Premium Account Usage.
The Securities Premium Account is a capital reserve established upon the issuance of shares at a premium. The Companies Act dictates that premium amounts are restricted to specific uses, including:
Issuance of fully paid bonus shares to shareholders,
Amortization of the company's preliminary expenses,
Payment of premiums associated with the redemption of preference shares or debentures.
Step 2: Restrictions on Securities Premium.
This reserve is not permissible for dividend distribution to shareholders. Dividends are sourced from company profits, not from capital reserves like the Securities Premium Account. Consequently, option (d) is the accurate selection.