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Dividend declaration

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Suraj S

Audit Executive

232 Points Posted on 31 May 2012

One of my client is a non-listed public company. The company has been making losses in the past few previous years and it has an accumulated loss in its Balance Sheet. This year the company has been able to make profit enough to cover the accumulated loss. But, the company's mgt. is keen to declare dividend during for the year ended 31st March, 2012. The quantitative details are below:

Accumulated Loss - Rs. 30,00,000.00

Current Year Profit - Rs. 50,00,000.00

Dividend Proposed - Rs. 30,00,000.00

Now, my question is after set off of losses the surplus of the company would be only Rs. 20,00,000.00 but the mgt. has decided to propose dividend of Rs. 30,00,000.00. It has no other accumulated reserves. Can the company do so?? The mgt. after consulting some experts is claiming that they can declare dividend this year even though they are short of Rs. 10,00,000.00. What is your opinion in this scenario?????

Replies (1)

prakash

Company Secretary

814 Points Posted on 31 May 2012

As per section 205 (1) (b), If the Company has incurred any loss in any previous financial year or years then, the amount of the loss or an amount which is equal to the amount provided for depreciation for that year or those years whichever is less, shall be set off against the profits of the company for the year which dividend is proposed to be declared or paid or against the profits of the company for any previous financial year or years, arrived at in both cases after providing for deprecation in accordance with the provisions of sub-section 2 or against both.

Company can declare the dividend of Rs. 30,000,000 if depreciation for that year or those years is less than 20,000,000.