XYZ Ltd is a listed company with issued 10,000 equity shares of ₹ 100 each at a premium of ₹ 20 per share. The company has accumulated ₹ 2,00,000 in its Securities Premium Account. One of the directors suggested in the b

In accordance with the provisions of Section 52(2) of the Companies Act, 2013, the securities premium can be utilized only for: towards the issue of unissued shares of the company to the members of the company as fully paid bonus shares; in writing off the preliminary expenses of the company; writing off commission paid, or discount allowed, or the expenses incurred on issue of shares or debentures of the company. for providing for the premium payable on redemption of any redeemable preference shares or debentures of the company; or for the purchase of its own shares or other securities under section 68. Section 52(3) further states that the securities premium account may, notwithstanding anything contained in sub-sections (1) and (2), be applied by such class of companies, as may be prescribed and whose financial statement complies with the accounting standards prescribed for such class of companies under section 133- in paying up unissued equity shares of the company to be issued to members of the company as fully paid bonus shares; or in writing off the expenses of or the commission paid or discount allowed on any issue of equity shares of the company; or for the purchase of its own shares or other securities under section 68. Firstly, the premium cannot be treated as profit and as such the amount of premium is not available for distribution as dividend. Secondly, the amount of premium whether received in cash or in kind must be kept in a separate account, known as the "Securities Premium Account". Thirdly, the amount of premium is to be maintained with the same sanctity as the share capital. Accordingly, the suggestion of a director is partly correct. His suggestion to utilise the securities premium account for writing off the preliminary expenses is valid. However, the suggestion to utilise the same for distribution of dividend is not valid.