The balance in the securities premium account can not be used ------------?

Securities Premium Account is a capital reserve created when shares are issued at a price higher than their face value. As per Section 52 of the Companies Act, 2013, this account can only be utilized for specific purposes.

Permitted uses of Securities Premium:

• Writing off preliminary expenses of the company (Option 1 ✓)

• Issue of fully paid bonus shares to members (Option 2 ✓)

• Writing off expenses, commission or discount on issue of shares or debentures (Option 4 ✓)

• Providing premium on redemption of preference shares or debentures

• Buy-back of own shares

Why Option 3 is correct:

Securities Premium cannot be used to pay purchase consideration. Purchase consideration refers to the amount paid to acquire a business or assets. This is a capital expenditure that must be paid from:

• Cash reserves
• General reserves
• Borrowed funds
• Fresh issue of shares or debentures

Since Securities Premium is a capital reserve with restricted usage, it cannot be distributed or used for making payments like purchase consideration. It can only be applied for the specific purposes mentioned in Section 52.

The key distinction is that Securities Premium can be used for capital adjustments (like bonus shares, writing off capital losses) but not for capital payments (like purchase consideration).