Question

Assertion (A): Securities Premium can be used for issue of fully paid bonus shares and for distribution of dividend in cash.

Reason (R): Balance of Securities Premium may be transferred to General Reserve Account.

In the context of the above two statements, which of the following is correct?

Options

• Both (A) and (R) are correct and (R) is the correct explanation of (A).

• Both (A) and (R) are correct but (R) is not the correct explanation of (A).

• Only (R) is correct.

• Both (A) and (R) are wrong.

Answer 1

Both (A) and (R) are wrong.

Explanation:

Assertion (A) is false, Securities Premium can be used for issuing fully paid bonus shares, but cannot be used for distributing dividends in cash.

Reason (R) is also false, Securities Premium cannot be transferred to the General Reserve as per the Companies Act.