Dividend declaration query

Others 757 views 6 replies

Guest

I had dis little query regarding dividend:

A company has earned a total sum of Rs. 85 lakhs during the years from 1997-98 to 2001-02. The company has neither declared any dividend nor transferred any amount to the reserves during these years and kept the amount in the Profit & Loss account. Now the company proposes to appropriate a part of this amount for making payment of dividend for the year 2002-03 in which it has earned a profit of Rs. 18 lakhs. The Board proposes a payment of dividend of Rs. 25 lakhs. Advise the company.

My doubt is- If the company partly uses current year profits and partly uses past year profits, how much percentage should be transferred to reserves before the declaration/payment of dividend?

Replies (6)

Guest

A company has profit after depreciation and tax of Rs. 11,00,000 for the year 2002-03. In arriving at this profit a deduction was made of Rs. 3,00,000 in respect of the reserve created on account of Shipping Reserve.

My question is: What amount should be considered (Rs.11,00,000 or Rs. 14,00,000) for making appropriate transfer to reserves and subsequent declaration of dividend.

I feel we must take Rs. 11,00,000.

pahuja

C.A Final Student

472 Points Posted on 25 September 2011

Hi Tricha

Your contention is correct Rs 11 lakhs will be considered and dividend can be out of pre profits of the company either through the profit and loss or throungh free resrves.

thanks and regards

Suraj Pahuja..

RG - A Helping Hand

Company Secretary

13877 Points Posted on 26 September 2011

Dear Tricha,

You are requested to check the link to know the % to be transferred to reserve:

https://www.mca.gov.in/Ministry/actsbills/rules/CToPtRR1975.pdf

Guest

Nobody understood my question correctly....I know the prescribed percentage of profits to be transferred to reserves....I wanted to know that does the company have to make the transfer even if the dividend is declared out of "past years' profits" and not wholly out of current year profits?

Thank u....

Ravindar

CA Final Student

84 Points Posted on 26 September 2011

Company should make the transfer, because all profits are (Prior years and current year's together) in P&L account only. Hence it should transfer 7.5% of Current year's profit to reserves.

Ravindar

CA Final Student

84 Points Posted on 30 September 2011

Hi Tricha,

Please comment on the above answer. Are you agree with that or do you have any other thought. Please share with us, it will be beneficial to others too.