Skip to content

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

Sundaram Textiles Ltd declared an interim dividend in December from its surplus in the profit and loss account, but before payment the board wanted to cancel it. The company has not yet deposited the amount in a separate account. Which statement reflects the correct legal position on the interim dividend?

The board's interim dividend, once declared, is a liability of the company and must be paid within 30 days of declaration. The board cannot freely cancel it. Approval at the AGM is required only for a final dividend, not for an interim dividend.

  1. AThe interim dividend is a debt only after the AGM approves it, so the board can cancel it freely
  2. BThe interim dividend, once declared by the board, is treated like a declared dividend, so the company must pay it within the statutory period and cannot simply cancel itCorrect
  3. CThe interim dividend may be paid only out of the current year's profits and never from the accumulated surplus
  4. DThe interim dividend can be declared only by the members at an extraordinary general meeting

Explanation

The Board may declare an interim dividend during the financial year out of surplus in the profit and loss account and out of profits of the financial year up to the declaration. Once declared it becomes a debt of the company and must be paid within 30 days. Option A confuses it with a final dividend, which needs members' approval at the AGM.

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