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Dividend , general reserves treatment in company

Atharv Sankliya (1359 Points)

22 May 2022

dividend , general reserves treatment in company accounts ?

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10 Replies

yasaswi gomes (My grammar is 💯 good I) (7296 Points)
Replied 22 May 2022

Dr. Finance costs

Cr. Dividends payables

General Reserves are also referred to as “ Free Reserve “. According to the Companies Act, general reserve is to be created only when there is sufficient profit in an enterprise. Hence it is clear that it is not compulsory to create general reserve.

Dr. Retained earnings

Cr. General reserves

Eswar Reddy S (CFO- at NHTF) (58275 Points)
Replied 22 May 2022

PAT may be added to general reserves every year.

Dividends can be considered as debt due . So the liability may be created for proposed dividend either from current year profits past profits as per the board resolution and Share holders approval

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sabyasachi mukherjee (27858 Points)
Replied 22 May 2022

Dividend is never considered as debt due.
Its a payable account and paid from the undistributed profit of the company.

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Eswar Reddy S (CFO- at NHTF) (58275 Points)
Replied 22 May 2022

Once dividend is declared it is debt due to share holders , it can't be revoked.

Read companies act once

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yasaswi gomes (My grammar is 💯 good I) (7296 Points)
Replied 22 May 2022

Yes Mr. Sabhyasachi is correct. Dividends paid can be like

Dr. Retained earnings/ Finance costs

Cr. Bank

and above entry can be used for proposed dividends.

Eswar Reddy S (CFO- at NHTF) (58275 Points)
Replied 22 May 2022

Current or past profits can be the source of dividend.

If it become liability / debt due then then only there is meaning for payment.

1. P & L / General Reserve A/c Dr
To Proposed Dividend

2.Proposed Dividend A/c

To Bank

First entry on declaration of dividend and 2nd entry for making the payment

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sabyasachi mukherjee (27858 Points)
Replied 02 June 2022

It's not debt due. The nomenclature is not correct.

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Eswar Reddy S (CFO- at NHTF) (58275 Points)
Replied 02 June 2022

Once the dividend is declared then it can't be revoked. It has to be paid to SH.

Read the Companies Act once

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sabyasachi mukherjee (27858 Points)
Replied 02 June 2022

Who has told it can be revoked.Let me explain the provisions of companies act.
Sec 123 of companies act 2013
no dividend can be declared or paid by a company for any financial year except
1. out of profits of the company.
arrived at after providing for depreciation
the dividend proposed are of two types proposed and final.
2. out of money provided by the Central govt.
3. the amount of dividend including interm dividend shall be deposited in a scheduled bank in a seperate account within 5 days from the date of declaration of dividend.
So I know the basics.

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