interim dividend and calculation of depreciation

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kasturi (Querist)
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01 March 2010 can anybody tell me while calclating the profit for declaration of interim dividend whether depreciation for the full year is to be taken?

Rasesh

Rasesh (Expert)
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01 March 2010 Interim Dividend can be paid by the Board of Directors at their discretion. There is no law or formula suggested by any statute to determine the rate of interim dividend.

Ideally, if the decision is taken by the Board of Directors on the basis of interim accounts, then all income and expenses (including those accrued and provisions) should be considered. The Income and Expenses for the balance period can be projected by the management which should include depreciation for the balance period.

Nilesh Shah

Nilesh Shah (Expert)
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01 March 2010 Nilesh Shah Writes:

A) Interim financial statements for the period for which interim dividend is to be declared has to be prepared and the profit as shown in the financial statements is to be reduced by the following amounts

Ã˜ Depreciation for the full year

Ã˜ Tax including deferred tax and other anticipated losses for the year

Ã˜ Dividend on preference shares, if any

B) While declaring dividend the Board should also consider specified percentage of profit which is required to be transferred to reserves as per the Companies (Transfer of Profits to Reserves) Rules, 1975 while preparing final accounts for the year.

C) In case Interim Dividend is declared on only one class of Equity shares, the directors should ensure that the profit as calculated under point A) is adequate to meet the dividend that would have to be paid on the other classes of equity shares.

D) While final dividend may be paid out of free reserves, no interim dividend should be paid out of reserves in the event of a loss or inadequacy of profits as the companies (Declaration of Dividend out of Reserves) Rules, 1975 do not apply to Interim Dividend.

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