10 October 2008
a pvt co has an accumulated profits of Rs.70 lakhs in its p&l a/c on 31-3-08. the company has earned a profit of 10 lakhs for the half year ending sept 08. now the company is going to declare an interim dividend of 50lakhs claiming that Companies (Declaration of Dividend out of Reserves) Rules 1975 is not applicable to it as they are paying from accumulated profits not from reserves. (as the provision is "In the event of inadequacy or absence of profits in any year, dividend may be declared by a company for that year out of the accumulated profits earned by it in previous years and transferred by it to the reserves, subject to the conditions that....)
again is the Companies (Transfer of profits to reserves) rules 1975 is applicable to the above transaction? The company is claiming that the above Rule is only applicable if it pays dividend from the current profits only.So it is not applicable to them.
if it is applicable to them what will be the amount transfered to reserve; is it merely 10% of current profit(10 lakhs) assuming dividend exceeds 20% of paidup capital.
CAclubindia
