Question

When a company issues shares at a premium, the company can collect securities premium along with the following:

• A. Application money.
• B. Allotment money.
• C. Call money.
• D. Any of the above.

Hint:

Securities Premium: \[ = \text{Issue Price} - \text{Face Value} \] It may be collected with application, allotment or calls.

Answer 1

The Correct Option is D

Step 1: Understanding the Concept:
When shares are issued at a price higher than their face value (par value), the excess amount is called "Securities Premium."
For example, if a share with a face value of Rs. 10 is issued at Rs. 12, then Rs. 2 is the Securities Premium.
The Companies Act, 2013, governs how this premium is recorded and used.
Step 2: Detailed Explanation:
The timing of the collection of the securities premium is not fixed by law.
The Board of Directors of the company has the full discretion to decide at which stage of the share issue the premium will be payable by the applicants/shareholders.
1. Collection with Application (Option A): This is common when the demand for shares is very high. The company wants to secure the premium amount right at the start of the application process.
2. Collection with Allotment (Option B): This is the most standard accounting practice in textbook problems. Once the company decides who gets the shares, it asks for the allotment money and the premium together.
3. Collection with Calls (Option C): In some cases, the premium might be spread out and collected during subsequent calls (First Call or Final Call).
It is also possible for a company to collect the premium in installments across multiple stages.
Regardless of when it is collected, the total premium amount must be credited to a separate account called the "Securities Premium Account."
As per Section 52, this account can only be used for specific purposes like issuing fully paid bonus shares, writing off preliminary expenses, or providing for the premium on redemption of preference shares/debentures.
Since there is no legal bar on "when" to collect it, any of the stages mentioned is possible.
Step 3: Final Answer:
Securities premium can be collected at any stage of the share capital process as decided by the company.
Final Answer is (D).