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CS Executive · Company Law and Practice · Distribution of Profits

Zenith Pharma Ltd computes its profit for the year as follows: operating profit after Schedule II depreciation Rs 90 lakh, which includes Rs 25 lakh gain from revaluation of land and Rs 10 lakh change in fair value of an investment recorded as a gain. There are no carried-over losses. Considering the proviso on computation of profits in section 123(1)(a), what profit is available for dividend for the year?

Profit available for dividend is Rs 55 lakh. Revaluation gains and fair value changes in carrying amounts must be excluded when computing profits for dividend, so Rs 25 lakh and Rs 10 lakh are deducted from Rs 90 lakh.

  1. ARs 90 lakh
  2. BRs 65 lakh
  3. CRs 55 lakhCorrect
  4. DRs 80 lakh

Explanation

The proviso excludes unrealised or notional gains, revaluation of assets and fair value changes in carrying amounts. Deduct both Rs 25 lakh and Rs 10 lakh from Rs 90 lakh to get Rs 55 lakh. Rs 65 lakh excludes only the revaluation gain, and Rs 80 lakh excludes only the fair value gain.

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