in rule 3 sub rule 2 of companies declaration and payment of dividend rules 2014 , dividend to be declared shall not exceed 1/10 of aggregate of paid up share capital and free reserves.
whether this free reserves include surplus from profit and loss account
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Does free reserve includes surplus from profit and loss account
Replies (1)
No, this free reserve not include surplus from p&l account, but section 123(1)(b) second proviso amended which previously says that "In the case of inadequacy of profit in any financial year, any company propose to declare dividend out of accumulated profits earned by it in previous years and ""TRANSFERRED TO RESERVES "",Which shall be made as per Rule 3.
Now transferred to reserves is substituted with TRANSFERRED TO FREE RESERVES, So anamoly was about contraction b/w Regulation 123(1)(b) 2nd proviso which says transfer to reserves but rule 3 says about free reserves, So clarity has bring that if company transferred accumulated profits to Free reserves that can only be used for declaration of dividend...
Now transferred to reserves is substituted with TRANSFERRED TO FREE RESERVES, So anamoly was about contraction b/w Regulation 123(1)(b) 2nd proviso which says transfer to reserves but rule 3 says about free reserves, So clarity has bring that if company transferred accumulated profits to Free reserves that can only be used for declaration of dividend...
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