Correct interpretation of rules to 123(1)

Companies Act 2013 463 views 2 replies

Guest

In Companies Act (Declaration and Payment of Dividend) Rules, 2014, the conditions are mentioned as to how the dividends can be declared out of Reserves incase of inadequate profits or losses. In that sub-rule (5) is as follows, "No company shall declare dividend unless carried over previous losses and depreciation not provided in previous year or years are set off against profit of the company of the current year".

(1) Does it imply that previous losses are to be setted off against such inadequate profit? or

(2) Shall set-off be from amount of free reserves withdrawn reduced by current year loss? or

(3) Is it a general statement that previous year losses shall be setted off from current year profits and then check the inadequacy of profits or loss?

If the third interpretation is correct, why shall it come to this rules in the first place as it shall be a seperate rule or seperate sub-section?

Either conclusion or opinion will be appreciated.

Thanks is andvance.....

Replies (2)

P C Agrawal

Registered independent director Past Ch

8229 Points Posted on 14 November 2014

It means that if current year's profit is Rs.100 and brought forward loss is Rs.70, profit available for payment of dividend is only Rs.30.

Similarly, if current year's profit is Rs.100 and company has not provided for depreciation of Rs.40, profit available for payment of dividend will be Rs.60 only.

Guest

Assume my profits are 100 for the current year, Accumulated losses are 150 and the reserves with drawn are 60 for the purpose of issuing dividend.

So can dividend be paid out of 60 i.e. Reserves withdrawn for dividends (Less) Current Year Loss or out of 10 i.e. above amount (Less) Previous year Losses.

The question is shall the PY Losses need to be setted off from reserves withdrawn too.