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CA Pabbaraju Laxmi Narasimha (Chartered Accountant)     20 October 2011

Doubts on divisible profits


Please clarify on these issues.

1) Whether the Rules are same for dividend out of Past profits or Reserves,
2) Whether the accumulated losses include current year losses to be set-off against the amount withdrawn from the reserves.
3) As per the plain reading of the rules Dividend out of Reserves
   Condition 2 says the Amount withdrawn shall not exceed 1/10 of the PAID up capital + FREE reserves.
   Condition 3 says the amount of RESERVES shall not fall bellow 15% of the paid up capital.
          Reserves under condition 3 would mean both the FREE reserves and Other reserves such as Development Rebate Reserve, Capital Redemption Reserves, Statutory Reserve(which are usually Not considered as Free Reserves)

4) Dividend can be issued out of capital profits but not out of the capital reciepts? what is the difference between them? Whether capital recepts include PAID UP share capital.

 1 Replies


ACCOUNTANT (Student)     10 February 2012

Capital Profits are those included in capital receipts.............like they are attributed solely to be income of the organisation and use of such funds will be deemed to be APPLICATION OF INCOME..........where as Capital Receipts are just monetary gain.........though cant be treated as income or profits and the entire amount May or may not be eligible for payment of dividend...

The other two rules could be those to be applied simultaneously........

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