Dear Friends,
Company "A" ia having a loss during the year for rs 2Cr for the year ending 31st March 2014 wants to transfer his accumulated profits of previous year ending 31st March 2013 to the General Reserve.
So whether a company can transfer his accumulated profit to reserves??, if yes then upto wat limit company can transfer??, if cannot then y not ??
Under old Companies act, tranfer to reserves is govered under cos(Tranafe of Profits to Reseres) Rules, 1975. While payment of dividend, certain % of Profits need to be transferred to Reserves as per the slab rates provided thereunder. However under CA 2013, there is no such restriction but as per MCA's Notification dated 12.06.2014, the Companies (Declaraton and Payment of Dividend)Amdt. Rules, 2014, sub rule 5 of rule 3 states that "No company shall declare dividend unless carried over previous losses and depreciation not provided in previous year or years are set off against profits of the company of the current year."
It's clear from the above that after setting off previous losses and depreciation, the balance profits can be transfered to reserves at the option of the company.
Dear Sir, Thanks for your reply, but my query is if Company do not declare dividend during the year and it wants to transfer its accumulated profits to reserves.
For Example company has rs1,80,00,000 of accumulated profits, during the year company has incurred losses of 2,00,00,000 so can company transfer its total accumulated profits to general reserves without setting of its cuurent year losses.
Where no dividend is declared during the current year, the amount proposed to be transferred to reserves shall be lower than the average rate of divident declared during the immediately preceeding 3 years
Amount is transferred to reserves only out of profit available after setting off carried forward losses, if any. The statement of profit & loss will show negative balance of Rs.20 lacs after setting off loss. Hence there is no question of transferring any amount to reserves.
Thanks for your reply,
but if company has not declared dividend during the last 3 previous years and suppose the company has accumulated profits of rs 1cr and has loss of Rs50lac during the year, after setting of losses of current year balance of Rs 50lac will remain in Accumulated profits so the Company can transfer whole balance of rs 50 Lac of Accumulated profit to general reserve???
CAclubindia
