Hiii Ekta
Interim dividend is declared by the Board after justifying itself that the fiancial position of the Company is sound enough to support the Interm dividend.
Interim dividend,if declared, is payable out of the estimated profit for the period for which the Interim Dividend is to be declared, after taking into account:
a) Depreciation for the full year
b) Arrears of depreciation
c) Dividend at the contracted rate on preference shares,if any
d) Appropriatios and transfers to statutory reserves, taxation and the provisions of the Companies Rules 1975(Transfer of Profits to reserves).
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No dividend shall be declared or paid by a company for any financial year out of the profits of the company for that year arrived at after providing for depreciation in accordance with the provisions of sub-section (2) of section 205 of the Act, except after the transfer to the reserves of the company of a percentage of its profits for that year as specified below: -
(i) Where the dividend proposed exceeds 10 per cent but not 12.5 per cent of the paid-up capital, the amount to be transferred to the reserves shall not be less than 2.5 per cent of the current profits;
(ii) Where the dividend proposed exceeds 12.5 per cent but does not exceed 15 per cent of the paid-up capital, the amount to be transferred to the reserves shall not be less than 5 per cent of the current profits;
(iii) Where the dividend proposed exceeds 15 per cent, but does not exceed 20 per cent of the paid-up capital, the amount to be transferred to the reserves shall not be less than 7.5 per cent of the current profits; and
(iv) Where the dividend proposed exceeds 20 per cent of the paid-up capital, the amount to be transferred to reserves shall not be less than 10 per cent of the current profits.
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In you case you are dividend proposed to declared is 40% and is exceeding the 20% as mentioned in point no. (iv) in the above table, so you need to transfer a minimum of 10% of the current profits to the reserves i.e., 10006.25/-.
Now you can take the decision.
Learned please correct me if I am wrong in my explaination.
Regards
Priya Sharma
CAclubindia
