What is Securities Premium Reserve and how can it be used?

Securities Premium Reserve is the amount collected above face value when shares are issued at a premium. Per Companies Act 2013, it can be used ONLY for: (1) Issuing fully paid bonus shares to existing shareholders; (2) Writing off preliminary expenses and underwriting commission; (3) Providing premium on redemption of preference shares/debentures; (4) Buy-back of own shares. It CANNOT be distributed as dividend.

What are the conditions for forfeiture of shares?

Shares can be forfeited only when: (1) The shareholder fails to pay calls even after a proper notice; (2) The notice must specify: the amount due, a date by which it must be paid, and that non-payment will lead to forfeiture; (3) Forfeiture must be authorised by the Articles of Association; (4) Board of Directors passes a resolution for forfeiture.

What is the difference between calls in arrears and calls in advance?

Calls in Arrears: Amount due but not yet paid by shareholders (liability of shareholder). The company may charge interest on arrears (up to 5%). Calls in Advance: Amount voluntarily paid by shareholders before the call is made (liability of company — owes this to the shareholder). Company pays interest on calls in advance (at least 6%).

Issue of Shares and Journal Entries

Accounting for Share Capital • Class 12 Accountancy • NCERT • CBSE

Shares issued at par: face value. At premium: above face value (excess credited to Securities Premium Reserve). Forfeiture: shares cancelled for non-payment of calls — Share Capital debited, Calls in Arrears and Securities Premium/Forfeiture A/c credited. Reissue: forfeited shares sold again.

Key Formulas

Gain on Reissue = Forfeiture credit − Discount on reissue → Capital Reserve

Frequently Asked Questions

What is Securities Premium Reserve and how can it be used?: Securities Premium Reserve is the amount collected above face value when shares are issued at a premium. Per Companies Act 2013, it can be used ONLY for: (1) Issuing fully paid bonus shares to existing shareholders; (2) Writing off preliminary expenses and underwriting commission; (3) Providing premium on redemption of preference shares/debentures; (4) Buy-back of own shares. It CANNOT be distributed as dividend.
What are the conditions for forfeiture of shares?: Shares can be forfeited only when: (1) The shareholder fails to pay calls even after a proper notice; (2) The notice must specify: the amount due, a date by which it must be paid, and that non-payment will lead to forfeiture; (3) Forfeiture must be authorised by the Articles of Association; (4) Board of Directors passes a resolution for forfeiture.
What is the difference between calls in arrears and calls in advance?: Calls in Arrears: Amount due but not yet paid by shareholders (liability of shareholder). The company may charge interest on arrears (up to 5%). Calls in Advance: Amount voluntarily paid by shareholders before the call is made (liability of company — owes this to the shareholder). Company pays interest on calls in advance (at least 6%).

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