Securities Premium & Preliminary Expenses

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CA Amar Kant Choudhary (Querist)

30 July 2010 Dear Experts, Good Morning, Kindly advice whether it is optional to show both securities premium and preliminary expenses in the balance sheet or preliminary expenses should be adjusted against securities premium. Is there any case law in this regard? Sir, this is very urgent.

Thanks & Regards,
Amar Kant Choudhary

vrnanda

vrnanda (Expert)

31 July 2010 Hi amar,

let us understand that the securities premium account is a restricted account, and its utilization is subject provisions of the companies act.

your can adjust securities premium for the following;
1) bonus shares,
2) buy back, forfeiture,
3) writing off uncalled money on the shares,
4) for adjusting the share issue expenses
etc etc..

but i can never be utilized for adjusting the preliminary expenses, the same should be amortized over a period of five years, from the year the entity commences its operations.

kantijain

kantijain (Expert)

29 September 2010 Dear Amar,

Sec.78 restrict the usage of Securities Premium only for the following purposes---
* Can be used to issue fully paid up bonus shares and such premium amount used should be realised in cash.
* To write off preliminary exp. of the company.
*To write off any exp of or commission, discount allowed on any issue of shares or debenture.
* To provide for premium on redemption of shares or debentures.

Since writing off preliminary exp is specifically provided in the act you can do so.

Also the amortisation of preliminary exp over a period of 5 years is provided in section 35D of the Income Tax Act, 1961. Which need not be followed for statutory audit under companies act purpose.

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