Write-off discount on issue of debenture of company
Write-off preliminary expenses of the compnay
Issue of bonus share
All of the above
Answer is Right!
Answer is Wrong!
The correct answer is D. All of the above.
Security premium account is a reserve account that is created when a company issues shares at a premium. The premium is the difference between the face value of the share and the price at which it is issued. The security premium account can be used for the following purposes:
- To write off discount on issue of debentures.
- To write off preliminary expenses of the company.
- To issue bonus shares.
- To write off any other loss incurred by the company.
The security premium account is a part of the company’s reserves and is not available for distribution to shareholders as dividends. However, it can be used to write off certain expenses and losses, which can reduce the company’s taxable income.
Here is a brief explanation of each option:
- Write-off discount on issue of debentures: A debenture is a loan that a company raises from the public. The discount on issue of debentures is the difference between the face value of the debenture and the price at which it is issued. The security premium account can be used to write off this discount.
- Write-off preliminary expenses of the company: Preliminary expenses are the expenses that a company incurs before it starts its business. These expenses include the cost of registration, the cost of obtaining a license, and the cost of advertising. The security premium account can be used to write off these expenses.
- Issue of bonus shares: Bonus shares are shares that are issued to existing shareholders without any additional payment. The security premium account can be used to finance the issue of bonus shares.
- Write off any other loss incurred by the company: The security premium account can be used to write off any other loss incurred by the company, such as a loss from operations or a loss from a fire.