dividend out of p&l balance

experts where r u ?

Originally posted by : Shobhit Rustogi
	According to icai manual .. even if a company declares profit out of accumulated profits(p&l surplus), the company has to follow the mandatory transfer to reserve rules... but when i read the bare text of rules it is clearly written that Percentage of profits to be transferred to reserves.- No dividend shall be declared or paid by a company forany financial year out of the profits of the company for that year arrived at after providing for depreciation in accordance with the provisions of sub-section (2) of section 205 of the Act, except after the transfer.................................................................   Please clarify

 Hello Shobit

If you also read the other part of Section 205 which states as follows :

⁴[(2A) Notwithstanding anything contained in sub-section (1), on and from the commencement of the Companies (Amendment) Act, 1974 no dividend shall be declared or paid by a company for any financial year out of the profits of the company for that year arrived at after providing for depreciation in accordance with the provisions of sub-section (2), except after the transfer to the reserves of the company of such percentage of its profits for that year, not exceeding ten per cent, as may be prescribed:

 Provided that nothing in this sub-section shall be deemed to prohibit the voluntary transfer by a company of a higher percentage of its profits to the reserves in accordance with such rules as may be made by the Central Government in this behalf.]

So transfers to reserves is a must. Hope this clears your doubt.

Please refer the link for your reference.

https://www.vakilno1.com/bareacts/companiesact/s205.htm

Other views welcome

regards

Santosh Shah

but even after reading this !! icai answer is not being supprted...

look it carefully

Notwithstanding anything contained in sub-section (1), on and from the commencement of the Companies (Amendment) Act, 1974 no dividend shall be declared or paid by a company for any financial year out of the profits of the company for that year arrived at after providing for depreciation in accordance with the provisions of sub-secti

The transfer is required only in respect of profits of current year after providing for depreciation. Transfer in respect of profits of previous years is not required.