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CS Executive · Company Law and Practice · Distribution of Profits

Kaveri Foods Ltd has incurred a loss up to the end of the quarter immediately preceding the date on which its Board proposes to declare an interim dividend. The company declared dividends of 10%, 12% and 14% in the immediately preceding three financial years. What is the maximum rate at which the Board may declare the interim dividend?

The maximum rate is 12%. When a company has a loss up to the quarter preceding the declaration, interim dividend cannot be higher than the average rate declared in the three preceding financial years, and the average of 10, 12 and 14 percent is 12 percent.

  1. A14%, the latest rate declared
  2. B12%, the average of the preceding three yearsCorrect
  3. C10%, the lowest rate declared
  4. DNo limit, since the Board decides interim dividend

Explanation

Under the proviso to section 123(3), where the company has incurred a loss up to the end of the preceding quarter, interim dividend cannot exceed the average dividend of the preceding three years. Average = (10+12+14)/3 = 12%. Choosing 14% uses the latest rate instead of the average.

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