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Declaration of dividend out of accumulated losses

CA. Rashi Goyal (Chartered Accountant) (512 Points)

04 April 2011

Hello Friends,

One Private Limited Company is suffering from losses since its incorporation and have no monies in their reserve account but it is anticipating some tax refunds. Can it be possible to declare the dividend out of anticipated refund amounts?

Please provide your views regarding this?

Regards,

Rashi Goyal

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8 Replies

Devendra (Chartered Accountant) (4775 Points)
Replied 04 April 2011

MADAM,

AS PER MY VIEWS DIVIDEND IS TO BE DECLARED ONLY FROM THE PROFITS OF THE CURRENT YEAR AFTER GIVING EFFECT TO CURRENT YEAR'S DEPRECIATION. DIVIDEND ALSO CAN BE DECLARED FROM THE ACCUMULATED PROFITS OF THE COMPANY.

BUT I DON'T THINK SO DIVIDEND CAN BE DECLARED FROM THE TAX REFUND RECEIVED BY THE CO.

IN YOUR CASE TAX REFUND CANNOT BE CONSIDERED AS PROFIT

REGARDS,

DEVENDRA

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CA. Rashi Goyal (Chartered Accountant) (512 Points)
Replied 04 April 2011

Ok, I agree to you, now suppose the refunds have been recieved, and the shareholder holding 99.99% share capital wishes to withdraw the amount of Rs. 50 Lakhs which is lying in the bank account of same company.

Now the question arises, can the amount be withdrawn, if yes than what is the right accounting treatment and its tax implications.

Regards,

Rashi Goyal

Jayashree S Iyer (Company Secretary) (3224 Points)
Replied 05 April 2011

How can a shareholder withdraw the amount lying in Company's Bank Account? He is not authorised to withdraw any money from the company's bank account.