Sources of Dividend Declaration

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Questions and Answers

What is the primary source of dividend payment according to Section 2(35) of the Companies Act, 2013?

Free Reserves

Interim Dividend

Past Year Profits (correct)

Current Year Profits

What is the recommended authority for dividend declaration according to Clause 80 of Table F in Schedule I?

Annual General Meeting

General Meeting

Board of Directors (correct)

Shareholders

What is the primary purpose of dividend payment according to the content?

To increase the company's reserves

To distribute profits to shareholders (correct)

To increase the company's capital

To pay off company liabilities

What is the status of dividend before it is declared by the shareholders at a validly constituted general meeting?

It is not a liability Signup and view all the answers

What is the authority that approves the dividend amount recommended by the Board of Directors?

Shareholders Signup and view all the answers

What is the distribution of profits referred to in the content?

Dividend Signup and view all the answers

What is the purpose of the Board's Report in relation to dividend declaration?

To recommend the dividend amount Signup and view all the answers

What is the type of resolution required to declare dividend at a general meeting?

Ordinary Resolution Signup and view all the answers

What is the source of the power to declare a dividend in a company?

The shareholders Signup and view all the answers

What is the basis for calculating the dividend per share?

Nominal or Face Value of the share Signup and view all the answers

What is the minimum number of shareholders required to pass a resolution for payment of dividend at a rate higher than that recommended by the directors?

Unanimous consent Signup and view all the answers

Under which section of the Companies Act, 2013 is the declaration of dividend by the Board of Directors mentioned?

Section 134 (3) (k) Signup and view all the answers

What type of resolution is required for declaration of dividend at an annual general meeting?

Ordinary resolution Signup and view all the answers

What is the limitation on the power of shareholders to declare dividend?

They can declare dividend only up to the recommended rate Signup and view all the answers

What is the basis for classification of dividend based on time?

When declared Signup and view all the answers

What is the provision related to interim dividend mentioned in the Companies Act, 2013?

Section 123 (3) Signup and view all the answers

Which of the following sources of dividend declaration is not correct?

Reserves created by revaluation of assets Signup and view all the answers

What is meant by 'free reserves' in the context of dividend declaration?

Such reserves which are available for distribution as dividend Signup and view all the answers

Before declaring a dividend, what is mandatory to set off against the profit of the company for the current year?

Carried over previous losses and depreciation not provided in previous year or years Signup and view all the answers

What is the source of dividend in case of a guarantee given by the Central Government or a State Government?

Provision of money by the Government Signup and view all the answers

What is the primary requirement for declaration of dividend from profits of any previous financial year or years?

The profits should be arrived at after providing for depreciation in accordance with Schedule II Signup and view all the answers

Which of the following is not a condition for using profits of any previous financial year or years for dividend declaration?

The profits should be used for repayment of loan Signup and view all the answers

What is the purpose of providing for depreciation in accordance with Schedule II while declaring dividend?

To arrive at the correct profit figure for dividend declaration Signup and view all the answers

Which of the following statements is true about the declaration of dividend?

Dividend can be declared from both the profits of the current financial year and profits of any previous financial year or years Signup and view all the answers

Study Notes

Sources for Declaration of Dividend

Profits of the current financial year can be used for declaration of dividend, after providing for depreciation in accordance with Schedule II.
Profits of any previous financial year or years can be used for declaration of dividend, after providing for depreciation in accordance with Schedule II and remaining undistributed.
Only free reserves can be used for declaration or payment of dividend, not other reserves.
Free reserves are defined as reserves that are available for distribution as dividend, as per the latest audited balance sheet of a company.
Certain items shall not be treated as free reserves, such as unrealized gains, notional gains, or revaluation of assets.
Provision of money by the Government can also be a source for declaration of dividend.

Meaning of Dividend

Dividend is defined as a distribution of any sums to members out of profits and wherever permitted out of free reserves available for the purpose.
Dividend is the shareholders' return on their investment/capital in the company.
Dividend is part of the distributable profits that have been paid out to shareholders whenever declared.

Declaration and Payment of Dividend

The company in general meeting may declare dividends, but no dividend shall exceed the amount recommended by the Board.
Dividend is recommended by the Board of Directors in the Board's Report and approved by Shareholders at the Annual General Meeting.
Dividend is not a liability unless it is declared by the shareholders at a validly constituted general meeting by passing an ordinary resolution.
Declaration of dividend by the company at a rate higher than the rate recommended by the Board is not permitted.
Dividend is declared as a proportion of Nominal or Face Value of a share.

Types of Dividend

Interim Dividend: declared and paid during the financial year, before the annual general meeting.
Final Dividend: declared and paid after the annual general meeting, based on the company's profit for the financial year.

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Description

This quiz covers the sources of dividend declaration according to Section 123(1), including profits from current and previous financial years.