Question

Which of the following is not a purpose for which the securities premium amount can be used?

Options

• Issuing fully paid bonus shares to shareholders.

• Issuing partly paid up bonus shares to shareholders.

• Writing off preliminary expenses of the company.

• In purchasing its own shares (buy back).

Answer 1

Issuing partly paid up bonus shares to shareholders.

Explanation:

Because the shares are partially paid up, the security premium amount cannot be used to issue partially paid up bonus shares to shareholders.

It can be used for:

1. The stockholders will receive fully paid-up bonus shares.
2. To deduct the company’s preliminary expenses.
3. To deduct the commission paid or expenditures incurred in connection with the issuance of shares or debentures.
4. To pay a premium on the company’s preference shares or debentures being redeemed.
5. Section 68 allows for the purchase of stock shares and other securities.