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Can securities premium can be used as investment??

Vivek Jain (CS) (205 Points)

07 March 2014

Securities Premium Money amount is used for issuing bonus shares or to writr off lossess.

If Securities Premium Money can also be used for Investment purpose by Company??.

If No, then why most small private company is doing so??

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4 Replies

Manoj Mehta (Head Of Department (Accounts & Finance)) (1479 Points)
Replied 07 March 2014

Dear vivek security premium cant be used as investment purpose. It should nlbe shown in your balance sheet. And cant be transferred for any investment. Reserves and surpluse can be used for investment purpose to earn better return or you can pay dividend from the same.

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P C Agrawal (Registered independent director Past Chairman of Aurangabad Chapter of ICSI Practicing Company Secretary at Aurangabad) (8229 Points)
Replied 07 March 2014

Sec.78(2) of CA 1956 has put certain restrictions on utilisation of Securities Premium A/c. If you see the permitted uses you will find that in Balance Sheet Securities Premium A/c willl be reduced and another liabillity will be created or asset side will be reduced for equivalent amount. However, in case of investment, you are not going to reduce securities premium a/c and hence there is no restriction on this account. You willl be making investment either out of Bank balance (assets side) or out of borrowing, but not out of securities premium a/c.

Vivek Jain (CS) (205 Points)
Replied 07 March 2014

Thanks for your reply. However, whatever money utilised from bank is actually pertains to securities premium amount only. If this fact can be established easily, will your reply still hold good??

P C Agrawal (Registered independent director Past Chairman of Aurangabad Chapter of ICSI Practicing Company Secretary at Aurangabad) (8229 Points)
Replied 08 March 2014

Yes please. This will of course be subject to compliance of other provisions like Section 372A, RBI Act (relating to NBFC) etc.