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CS Executive · Company Law and Practice · Distribution of Profits

Meridian Textiles Ltd, a company with no government guarantee, wants to declare a dividend for the current year. Which of the following is a source from which the Companies Act, 2013 permits dividend to be declared or paid?

Dividend may be declared out of the current year's profits arrived at after providing depreciation in accordance with Schedule II. Unrealised or revaluation gains are excluded from profits, and no dividend can be paid from reserves other than free reserves.

  1. AUnrealised gains arising from revaluation of its land, included in profits
  2. BProfits of the current year arrived at after providing for depreciation as per Schedule IICorrect
  3. CIts securities premium account, treated as a free reserve
  4. DIts capital redemption reserve, treated as a free reserve

Explanation

Section 123(1)(a) allows dividend out of current year profits after providing depreciation under Schedule II, or undistributed profits of earlier years, or both. Unrealised or revaluation gains must be excluded when computing profits, and dividend cannot be paid from reserves other than free reserves.

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