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CS Executive · Company Law and Practice · Distribution of Profits

Kaveri Foods Ltd has an accumulated gain of Rs 25 lakh arising only from upward revaluation of its land, which is recorded in a revaluation reserve. The Board proposes to include this gain in computing profits available for dividend. What is the position under Section 123?

The Rs 25 lakh revaluation gain must be excluded. Section 123(1) provides that in computing profits for dividend, amounts representing unrealised gains, notional gains or revaluation of assets, and fair-value changes in carrying amounts, are left out.

  1. AThe gain may be included because it is part of reserves
  2. BThe gain may be included if the auditors certify the valuation
  3. CThe gain may be included if the dividend is only an interim dividend
  4. DThe gain must be excluded, as unrealised gains and revaluation of assets are excluded in computing profits for dividendCorrect

Explanation

The proviso to Section 123(1)(a) says that in computing profits any amount representing unrealised gains, notional gains or revaluation of assets must be excluded. Neither auditor certification nor the interim nature of the dividend changes this.

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