Proposed dividend

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saikumar (Querist)

16 May 2015 Sir i am having a doubt regarding 'Proposed dividend'

Whether provision created for the proposed dividend is a appropriation of profits (or) Charge against the profits.

If it is appropriation of profits then the provision for proposed dividend is created out of the Previous years accumulation of profits then also it shall be treated as appropriation of profits, If not then what is the same.

From the definition of appropriation of profits, i understand that any profits transferred from the current year profits for the future purpose to the reserves is called as appropriation of profits, If not please tell me what is the meaning sir.

CA. Sunil Gokhale

CA. Sunil Gokhale (Expert)

28 May 2015 Proposed dividend is appropriation out of profits. Charge against profit means an expense charged to P&L a/c and such expense is charged to the account even if there are insufficient profit, i.e. the net result can be a loss. Whereas, appropriation out of profits means first there must be profits available for you to take something out of it. You cannot debit something in P&L appropriation a/c unless you have sufficient credit balance. Opening balance in P&L Approp. a/c, which is the undistributed profit of earlier years, can be used for paying dividend. However, balance in reserves can be used only subject to certain restrictions as laid down in Companies (Declaration of dividend out of reserves) Rules, 1975.

saikumar

saikumar (Querist)

30 May 2015 Thanq u for your reply sir.

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