Skip to content

CA Intermediate · Corporate and Other Laws · Declaration and Payment of Dividend

Sagar Pharma Ltd. has not made a profit in the current year but wants to declare a dividend out of its free reserves accumulated from earlier years. Which condition is among those the Companies Act, 2013 and the related Rules lay down for such a declaration?

The dividend rate must not exceed the average of the rates declared in the three years immediately preceding. This limit protects the company's reserves when it declares dividend from free reserves without sufficient current-year profit, and no government approval is needed for it.

  1. AThe rate of dividend declared must be higher than the average rate of the preceding three years
  2. BThe rate of dividend declared must not exceed the average of the rates declared in the preceding three yearsCorrect
  3. CPrior approval of the Central Government must be obtained in every case
  4. DThe dividend can be declared only if it is paid entirely in cash to the promoters

Explanation

Under the Rules, when a company lacks adequate current profits, the dividend rate must not exceed the average of the rates in the three immediately preceding years. Higher rates are barred, and no Central Government approval or promoter-only payment rule applies.

Did you get it right without looking?

One question tells you little. A timed set on Declaration and Payment of Dividend shows your real accuracy, how long you take and where you lose marks.

Practise Declaration and Payment of DividendFree diagnostic mock

More Declaration and Payment of Dividend questions