Skip to content

CS Executive · Corporate Accounting and Financial Management · Dividend Decisions

Under the Companies Act, 2013 framework taught for CS Executive, which of the following is a legal restriction relevant to a company declaring dividend?

Dividend can be declared only out of profits, such as current-year or accumulated free reserves, and not out of capital. The law sets no mandatory minimum dividend rate, does not forbid bonus issues, and does not require debentures to be redeemed first.

  1. ADividend can be declared only out of profits, and not out of capitalCorrect
  2. BDividend must always be at least 10% of paid-up capital every year
  3. CDividend must be paid only in cash and never as bonus shares
  4. DDividend can be declared only after all debentures are redeemed

Explanation

The Act permits dividend generally only out of current-year profits, accumulated past profits or money provided by government, not out of capital. There is no fixed minimum rate, and bonus shares from reserves are allowed as a form of capitalisation. Debenture redemption is not a precondition.

Did you get it right without looking?

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

Practise Dividend DecisionsFree diagnostic mock

More Dividend Decisions questions