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CS Executive · Company Law and Practice · Distribution of Profits

Meera Pharma 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 8% in the preceding three financial years. What is the maximum rate at which the Board can declare the interim dividend?

The maximum is 10%. Where the company has incurred a loss up to the quarter preceding the declaration, the interim dividend cannot exceed the average dividend rate of the previous three financial years, and the average of 10, 12 and 8 is 10 percent.

  1. A12%, the highest rate in the last three years
  2. B10%, the average of the dividends declared in the preceding three yearsCorrect
  3. C8%, the lowest rate in the last three years
  4. DNo interim dividend can be declared at all

Explanation

The proviso to Section 123(3) bars an interim dividend at a rate higher than the average dividends declared in the immediately preceding three financial years where there is a loss up to the preceding quarter. Average = (10+12+8)/3 = 10%. The highest rate (12%) would exceed the average, and the law does not impose the lowest-rate cap or a total ban.

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