Dividends.

Name : Smit Mestry.

Roll No.: 530.
Subject: Audit.
Presented to: Prof. Poonam Popat.

Introduction.
Dividend means the portion of the profit received by the
shareholders from the companys net profits, which is legally
available for distribution among the members.
Dividend is the return on the share capital subscribed for and
paid to its shareholders by a company.

Difference between Dividend and Interest.

Dividend.
Paid
to
preference
shareholders and equity
shareholders.
Is not a debt.
Can be paid out of the
profits.
Appropriation of profits.

Interest.
Paid on debentures and
long term and short term
loans/borrowings.
It is a debt.
Can be paid out of the
companys assets.
Charge in profits.

Types of dividends.
Final Dividend:
Dividend that is declared at the annual general meeting of
the company is called final dividend. Final dividend once
declared becomes a debt for the company. It can only be
declared if recommended by the Board Of Directors.

Interim Dividend:
Dividend declared between two annual general meetings of
the company is known as interim dividend. All provisions
relating to payment of dividend applies to interim dividend
as well.

Dividend on Preference Shares.

A preference share carries a preferential right as to dividend,
subject to availability of distributable profits. This right to dividend
could either be fixed or an amount calculated at a fixed rate.
Dividend on preference shares is to be paid before paying the
equity shareholders. These rights in respect to dividends are
subject to certain conditions :
1. Preference shares are a part of companys share capital,
dividend can only be paid if the company has earned profit.
2. The dividend becomes payable to the holder only when it is
declared.
3. Preference shareholders are not entitled to treat preference
dividend as a debt and sue for its payment. However, if the
companys articles state that companys profit shall be
applied by way of payment to preference dividends, then the
holder can sue even if it id not declared.

Sources Of Declaration of Dividends.

Companies Act provide that no dividend shall be paid or declared
for financial year except:
Out of the profits of the company for that year after
providing for depreciation.
Out of the money provided by the Government for payment
of dividend by the company in pursuance of a guarantee by
that government.

Transfer of profits to Reserves.

A company may before declaration of dividend, transfer such
amount or percentage of profits for that financial year as it may
consider appropriate to the reserves of the company.

Rule 3 of Companies (Declaration and Payment) Rules,

2014.
The rate of the dividend declared shall not exceed the
average of the rates at which dividend was declared in the
three immediate preceding years. This rule shall not apply to
the companies who have not paid dividend in the past three
years.
The total amount to be drawn from accumulated profits shall
not exceed one tenth of the total paid up share capital and
reserves.
The amount so drawn shall be first used for setting off losses
of the financial year in which dividend is declared.
The balance of the reserves after the withdrawal of this
amount shall not fall below 15 percent of its paid up capital.

 Dividend is to be declared from free reserves only.

Declaration Of Interim Dividend.

Interim dividend can be declared out of the profits during any
financial year and profits of the year in which the dividend is to be
declared. If the company has declared any loss during the current
financial year up to the end of the quarter preceding the date of
declaration of interim dividend, such dividend should not be
declared at a rate higher than the average dividend paid during
the immediately preceding three financial years.

Amount to be Deposited in the Special Account of Scheduled

Bank.
The amount of dividend to be paid shall be deposited in a special
account of the scheduled bank within 5 days from the declaration
of dividend and the articles of the company do not authorize so, it
should be amended accordingly.

Dividend only to Registered Shareholder.

Dividend shall only be paid to the registered shareholder of the
share or to his order or to his banker.

Transfer to unpaid Dividend Account.

When the dividend is not paid or claimed within 30 days, the
company shall, within 7 days transfer the amount to the Unpaid
Dividend Account which shall be opened with the scheduled bank.

Effect of Non-Transfer of Dividend.

If any default is made in transferring the amount to the said
account or any part thereof to the Unpaid Dividend Account, then
it shall pay interest on that amount which is not transferred at the
rate of 12%p.a. and the accruing amount shall benefit the
member in the proportion of the amount being unpaid.

Transfer To Investor Education And Protection Fund.

The money transferred to the Unpaid Dividend Account of the
company which remains unpaid for a period of 7 years from the
date of transfer shall be transferred to Investor Protection and
Education Fund and a company shall send a statement with the
details of such transfer to the concerned authority and obtain a
receipt of such transfer from the authority and the receipt shall
act as evidence of the transfer.

Bibliography.
www.investopedia.com/terms/d/dividend.asp.html
www.taxguru.in/company-law/declaration-paymentdividend-companies-act-2013.html
Companies Act,2013