Question

Assertion (A): Securities Premium cannot be utilised for writing off loss on sale of a fixed asset.

Reason (R): Securities Premium may be applied only for the purposes mentioned in Section 52(2) of the Companies Act, 2013.

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

Options

• Both (A) and (R) are true, but (R) is not the correct reason of (A).

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

• Both (A) and (R) are false.

• (A) is false, but (R) is true.

Answer 1

Both (A) and (R) are true and (R) is the correct reason of (A).

Explanation:

Assertion (A): True – Securities Premium cannot be used to write off a loss on sale of a fixed asset.

Reason (R): True – Section 52(2) of the Companies Act, 2013 restricts the use of Securities Premium only for specific purposes, such as:

1. Writing off preliminary expenses,

2. Writing off expenses/commission/discount on issue of shares or debentures,

3. Issuing fully paid bonus shares,

4. Providing premium on redemption of preference shares/debentures,

5. Buy-back of shares.