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Payment of dividend

ACCOUNTANT (Student) (559 Points)

10 October 2011

Can dividend be paid from the cash proceeds of a share issue (After the shares are allotted)....?

Please clarify my doubt....

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6 Replies

G.L.Subhramanian (PCS) (206 Points)
Replied 10 October 2011

Hi swetha,

Section 205 says that dividend can be paid only out of profits of current year or previous year(s) after providing for depreciation.

Dividend is paid to shareholders based only the profits of the company. The proceeds of share issue, therefore, cannot be used for paying dividend to shareholders.

Regards,

Subbu

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priyatambika ( ca final student) (323 Points)
Replied 10 October 2011

agreed with G.L.Subhramanaian... further if it is decided to pay dividend out of capital profit ,then such capital profit must be realised in cash

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ACCOUNTANT (Student) (559 Points)
Replied 11 October 2011

Can you pl. give more clarification on "Cap profit realised in Cash..".......?

CS Ankur Srivastava (Company Secretary & Compliance Officer) (17853 Points)
Replied 11 October 2011

Originally posted by : G.L.Subhramanian
	Hi swetha, Section 205 says that dividend can be paid only out of profits of current year or previous year(s) after providing for depreciation. Dividend is paid to shareholders based only the profits of the company. The proceeds of share issue, therefore, cannot be used for paying dividend to shareholders. Regards, Subbu

priyatambika ( ca final student) (323 Points)
Replied 11 October 2011

dividend can be paid either out of revenue profit or capital profit.

if paid out of revenue profit then some conditions must be fulfilled like providing for depreciation (of current yr & prev yrs) and transferring to reserve (according to specified %) in the yr in which it is proposed to pay div.

if paid out of capital profit ,3 conditions must be fulfilled:

-the AOA of co. permits for such distribution

-the share capital & reserve shall be fully represented by net aggregate value of assets remained after distribution of such profit

-such capital profit has been realised in cash

ex: suppose cost of land is 20 lac & it is sold for 25 lac..then such rs 5 lac can be distributed as div provided above conditions are fulfilled