A_TeamCurious In: 1. Financial Accounting > Miscellaneous What is securities premium reserve? What is securities premium reserve? Share Facebook You must login to add an answer. Username or email* Password* Captcha* Remember Me! Forgot Password? Need An Account, Sign Up Here 1 Answer Voted Recent Pooja_Parikh Aspiring Chartered Accountant 2021-11-23T18:57:33+00:00Added an answer on November 23, 2021 at 6:57 pm This answer was edited. When a company issues shares to shareholders at a price over the face value (at a premium), that amount is termed as securities premium. This amount is transferred to what we call the securities premium reserve. The company is required to maintain a separate reserve for securities premium. Utilization Securities premium reserve can be used for the following reasons: Issue of fully paid Bonus share capital. To cover preliminary expenses of a company. For funding the buy-back of securities. Since it is not a free reserve, it can only be used for a few specific purposes. The amount received as securities premium cannot be used to transfer dividends to shareholders Treatment When a company issues shares at a premium, the securities premium reserve account is credited along with share capital as an increase in capital is credited according to the modern rule of accounting. For example, Sonly Ltd. issues 1,000 shares of $10 face value at $15. Here, the amount of premium would be $5 (15 – 10) per share. Therefore, the journal entry would show: Bank a/c (15 x 1,000) Dr 15,000 To Share Capital (10 x 10,000) 10,000 To Securities Premium Reserve a/c (5 x 10,000) 5,000 From the above example, we can see that the company receives $15,000, but transfers $10,000 to share capital and the excess $5,000 to securities premium reserve. In the balance sheet, this securities premium reserve is shown under the title “Equity and Liabilities” under the head ‘‘Reserves and Surplus”. 0 Share Share Share on Facebook Share on Twitter Share on LinkedIn Share on WhatsApp Related Questions What are some examples of deferred revenue expenses? Are brands intangible assets? What comes in debit side of Realisation account? What is recorded in the Realisation account? What is not included in Realisation account? What is recorded on the credit side of a Realisation account? Can accounts payable have a debit balance?