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Share Premium

Sac (student) (28 Points)

11 August 2010

Dear All,

1. Whether share premium is considered as free reserve ? if yes, then why ? pls give me the references

2. Pls give me a list of free reserve

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10 Replies

Faiz Ahmed ( Article Trainee) (1731 Points)
Replied 11 August 2010

Its not Share Premium, It is Securities Premium. Securities Premium is not a free reserve because its use is limited to few areas as per sec.78.

Sec.78 says about the usage of Securities Premium---

* 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.

Hence, securities premium is not a free reserves.

List of Free Reserves:-

* General Reserve.

*P & L A/c( Cr. balance)

* Profit Available for dividend like Dividend Equalisation Reserve.

* Capital Reserve

3 Like

Faiz Ahmed ( Article Trainee) (1731 Points)
Replied 11 August 2010

Read this, especially reply of Surendra Sir, ---- https://www.caclubindia.com/experts/free-reserves-453965.asp

1 Like

Arvind Khemka (practicing CA) (210 Points)
Replied 11 August 2010

securities premium is not consisedered free reserves

Raghav Toshniwal (student) (450 Points)
Replied 11 August 2010

security premium is a bounded reserve !!

Its not free reserve...

Tanveer Singh (complicated) (1248 Points)
Replied 11 August 2010

/forum/imp-of-thanks-at-ca-club-india--98749.asp

ajithasai (m.ajitha) (95 Points)
Replied 13 August 2010

security premium is a bounded reserve !!

Its not free reserve.

regards,

phe9oxis,

Manoj BG (Tax Professional and in Service) (1795 Points)
Replied 13 August 2010

DEAR SAC,

SHARE PREMIUM IS NOT A FREE RESERVE. AS PER SEC 78 OF THE COMPANIES ACT, IT WOULD BE AVAILABLE FOR UTILISATION ONLY FOR THE SPECIFIC CAUSES SA MENTIONED THEREIN. THUS IT IS NOT A FREE RESERVE.

REGARDS,

MANOJ

Saurabh Saxena (Chartered Accountant) (75 Points)
Replied 30 March 2011

sECURITY PREMIUM IS A FREE RESERVE. READ DEFINITION UNDER COMPANIES ACT,1956. OR EVEN YOU CAN SEE DEFINITION GIVEN UNDER SECTION 372A.

TRIYAMBAK PATRO (IPCC STUDENT) (66 Points)
Replied 13 September 2012

Originally posted by : Saurabh Saxena
	sECURITY PREMIUM IS A FREE RESERVE. READ DEFINITION UNDER COMPANIES ACT,1956. OR EVEN YOU CAN SEE DEFINITION GIVEN UNDER SECTION 372A.

YES AS PER EXPLANATION b TO SEC 372A FREE RESERVES INCLUDES SCURITY PREMIUM BUT AGAIN AS PER THAT EXPLANATI TO SEC 372A "free reserves" means those reserves which, as per the latest audited balance sheet of the company, are free for
distribution as dividend and shall include balance to the credit of the securities premium account but shall not include
share application money.

BUT SECURITY PREMIUM CAN NOT BE USED FOR DISTRIBUTION OF DIVIDEND .IT HAS LIMITED USE FOR THE PURPOSE OF SEC 77A AND SEC 78.SO HOW CAN IT BE FREE RESERVE.