01 November 2013
I have one query under section 372A, One public company wants to provide loan to another company, but as per last audited balance sheet, company suffer losses and have debit balance in profit & loss account. Now my query is: For calculation of free reserves limits as per section 372A of the Act whether the losses in the profit and loss account need to be deducted or not. As per my understanding free reserves means those reserves which (as per the latest audited balance sheet), are free for distribution as dividend and hence debit balance in profit&loss account will not consider.
Please correct me, if i m wrong. I seek your valued suggestion on the above mentioned query.
“Free reserve” means those reserves which, as per the latest audited balance sheet of the company, are free for distribution as dividend and shall include balance to the credit to the security premium account but shall not include share application money. (Paid up capital can be considered as on the date of investment).
(It is not expressly provided that in arriving at the aggregate of the free reserve, the amount of accumulated balance of loss, balance of deferred revenue expenditure and other intangible assets, should be deducted. Capital and debenture redemption reserve is free reserve after redemption of preference shares and debenture respectively.)
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