utilisation of share premium

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Veda (Querist)
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18 November 2009 Can we use the amount lying in share premium account for paying rental deposits.

In the sense that the amount would be lying in share premium account itself and can we use the cash received from share premium towards payment of rental deposits and show share premium in liabilities side and rental deposit on asset side?

Ankur Garg

Ankur Garg (Expert)
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18 November 2009 Hi,

No I do not think so.

Section 78 deal with Utilisation of share premium account

The security premium account may, be applied by the companyâ€”

(i) in paying up un-issued securities of the company to be issued to members of the company as fully paid bonus securities;

(ii) in writing off the preliminary expenses of the company;

(iii) in writing off the expenses of, or the commission paid or discount allowed on, any issue of securities or debentures of the company; or

(iv) in providing for the premium payable on the redemption of any redeemable preference shares or of any debentures of the company.

Regards

Veda

Veda (Querist)
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18 November 2009 Hi Ankur, thanks.

this is the theoritical side. Do you think that the listed companies which raise huge money on premium would not be employing it for any purpose and would keep the money in a bank account idle or use it only for the purposes mentioned in sec 78. if you can substantiate your answer, it would be helpful, thanks

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Rasesh

Rasesh (Expert)
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22 November 2009 Share Premium can be utilised for various purposes by taking necessary approval of the members and getting the same approved by High Court.

Share Premium has been utilised by various companies for writting off intangible assets, adjusting against doubtful debts etc. You may refer to annual reports of Marico Industries and Reliance Industies who have utilised such reserves for various purposes. The annual reports post 2004 contain such adjustments.