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CA Intermediate · Advanced Accounting · Financial Statements of Companies

Vihaan Engineering Ltd. has a profit after tax of Rs 40,00,000 before any appropriation. It must transfer to a general reserve before declaring a dividend. Under the Companies (Declaration and Payment of Dividend) Rules, if the company proposes a dividend of 15% of paid-up capital of Rs 1,00,00,000, the minimum transfer to reserves is not compulsory, but if it chooses to transfer 5% of profit, the free reserves must be adequate. Assuming the company transfers 5% of PAT to general reserve and pays the 15% dividend, with no other appropriations, what is the balance carried forward to the Balance Sheet from the Statement of Profit and Loss for this year (ignoring opening balance and dividend distribution tax)?

The balance carried forward is Rs 23,00,000. From profit after tax of Rs 40,00,000, deduct the transfer to general reserve of Rs 2,00,000 (5%) and the dividend of Rs 15,00,000 (15% of Rs 1,00,00,000), leaving Rs 23,00,000.

  1. ARs 23,00,000Correct
  2. BRs 25,00,000
  3. CRs 21,00,000
  4. DRs 38,00,000

Explanation

Transfer to reserve = 5% of 40,00,000 = Rs 2,00,000. Dividend = 15% of 1,00,00,000 = Rs 15,00,000. Balance = 40,00,000 - 2,00,000 - 15,00,000 = Rs 23,00,000. Rs 25,00,000 ignores the transfer to reserve, and Rs 21,00,000 wrongly deducts a 10% transfer.

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