Divisible Profit
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Divisible Profit

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Divisible Profit

Divisible Profit

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Divisible Profit Divisible Profit Presentation Transcript

  • Divisible profit By Prof. L.Augustin Amaladas M.com.,AICWA.,B.Ed.,PGDFM
  • coverage
    • Meaning of profit
    • Types of profit
    • Divisible profit-meaning
    • Reserve and provision
    • Capital profit and revenue profits
    • Types of revenue profit
    • Types of capital profit
    • Types of dividend
    • Bonus shares
    • Redemption of preference shares
    • Buyback of shares
  • Continuation
    • Statutory reserves
    • How to use reserve for dividend-restrictions
    • Income tax point of view
    • TDS
    • Procedure of declaration of dividend
    • Unpaid dividend
    • Investors Education and protection fund
    • Interim dividend
    • Final dividend
  • Meaning of profit
    • Revenue-Cost
    • Asset-liabilities and capital
    • Income – expenditure
    • Meaning of income
    • Meaning of expenditure
    • Capital exp VS revenue expenditure
    • Capital income VS Revenue income
  • Types of profit
    • Gross profit
    • Net profit
    • Profit before tax
    • Operating profit
    • Non operating profit
    • Profit before Interest and dividend(PBIT)
    • Profit after interest and TAx(PAIT)
    • Capital profit
    • Revenue profit
    • Profit after depreciation
  • Divisible profit-meaning
    • Profit after adequate depreciation[Sec.205(2)]
    • Profit after interest-depreciation of the current year- Depreciation of the previous year- loss of the previous year
    • Depreciation as per Schedule XIV of the Companies Act
    • Section 350 –calculated on WDV
  • Depreciation
    • Accounting Standard-06
    • Depreciation on Fixed assets
    • Depreciation on circulating asset is compulsory ie Cost or market price whichever is lower.
  • Calculation of Dividend
    • On paid up capital in the absence of any indication to the contrary in the AOA
    • Preference share holders should be paid first.
  • Interim dividend
    • Section 2(14A) of companies Act defines dividend to include interim dividend
    • Regulation 85 of Table A
    • The rules applicable to final dividend is also applicable[205(1A)]
    • Directors declare dividend
    • Amount to be deposited to a separate account once dividend declared with in 5 days from the date of declaration of dividend
    • All the provisions sections 205(1), 205A, 205C,
    • 206, 206A 207 shall be applicable.
  • Final dividend
    • Rate-Recommendation made by BOD
    • Declared by Shareholders in the shareholders’ meeting
    • Arrears of dividend to preference shareholders is treated as contingent liability.
    • Right to receive dividend happens only when declared by the shareholders in the general meeting.
  • Final dividend-continue
    • Dividend can be declared even in the subsequent extra ordinary meeting.
    • Court will not interfere with respect to the quantum of dividend. It is the internal matter of the directors to decide the rate and shareholders approve it.
  • Legal provisions
    • 1. Resolution in the General meeting:
        • Shareholders themselves can not declared dividend
        • 217 indicates that the directors are required to state in their report the amount which they recommend.
  • 2. Dividend in proportion to paid up (Section 93)
    • If authorised by articles- on paid up share capital
    • If not authorised – on nominal value
    • Case law:- Oak bank oil co.VS Crum
  • 3.Dividend out of profits
    • Sec.205(2)-The current revenue profit after depreciation
    • Section 205(1)-Profits of the previous year
    • Out of both
    • Money provided by the Central government if guarantee given
    • #dividend can be declared if permitted by Central Government without providing depreciation.
  • The Cardinal principle
    • Dividend can be declared out of profits otherwise amount to a breach of trust.
    • If paid without profit Directors are joint and severally liable.
    • Case law:Exchange banking Company Flitoroft -debt becomes bad shown as asset without deducting bad debt from profit.
  • 4. Dividend includes interim dividend
    • Section 2(14A) of companies Act defines dividend to include interim dividend
    • Regulation 85 of Table A
    • The rules applicable to final dividend is also applicable[205(1A)]
    • Directors declare dividend
    • Amount to be deposited to a separate account once dividend declared with in 5 days from the date of declaration of dividend
    • All the provisions sections 205(1), 205A, 205C,
    • 206, 206A 207 shall be applicable.
  • 5.Transfer to reserve
    • Section 205(2A)-upto 10%
    • Rate of dividend % of profit to reserve
    • 10%-12.5% 2.5%
    • 12.5%-15% 5.0%
    • 15%-20% 7.5%
    • 20% and above 10%
  • 6. Dividend out reserves
    • Section 205-A(3)-comply with rules framed by Central Government.
  • 7.Dividend payable only in cash
    • Section 205(3)-Cash or cheque or dividend Warrant
    • Posted to the registered address of the shareholders.
    • Joint holders-to the first name on the register.
  • 8.Compliance with provisions of Section 80-A
    • It is related to redemption of irredeemable preference shares
    • If such shares are not redeemed it can not declare dividend
  • 9.Unpaid dividend
    • Section 205A(1)If dividend not paid /not claimed within 30 days It should be transferred to the unpaid dividend account within 7 days after the expiry of 30 days from the date of declaration of dividend.
    • Penalty:Sec.205A(4):1. Penalty to directors
    • 2. 12% interest per annum to such members payable by the company
  • 10.Transfer to investor Education and protection fund
    • Sec.205A(5): After 7 years from the date of transfer to unclaimed account
  • 11.Receipt from Central government for transfer
    • Receipt has to be obtained
    • Penalty: Sec.205A(8):Rs.5000 for every day of default.
  • 12.Claim from IEPF
    • No claim is allowed[Sec.205C]
  • 13. Payment of dividend to registered shareholder
    • To the registered shareholder/order/his banker
    • Shareholder can give direction to pay to the banker[Sec.206]
  • 14.Right to dividend, right shares and bonus shares
    • To the transferee if mandate given bt transferor
    • In the absence of such mandate by transferor company has to transfer to unpaid dividend account and keep abayance till the title to shares decided.
  • 15.Penalty
    • Sec.207 : if not paid within 30 days
    • Every director-imprisonment upto-3 years
    • Fine to directors: -1000 per day of default
    • The company has to pay Simple interest-18%pa during such default.
  • Special circumstances to pay dividend within 42 days
    • A) By reason of operation of law
    • B) the direction of share holders cannot be complied with
    • C) dispute to receive dividend
    • d) adjust dividend with claims with shareholder
    • E) not a fault of the company
  • Investors Education and protection fund(205C)
    • It is applicable to interim dividend
    • It consists of:
    • Unpaid dividend
    • The application money received for allotment of securities
    • Matured deposits with companies
    • Matured debentures with companies
    • Interest accrued to the account
    • Grants and donation to the fund
    • Interest received on investments made
  • Income tax
    • Dividend received by the assessee from domestic company is exempted u/s 10(34)/(35)
    • The payer company has to pay 12.5% as tax.
    • Dividend received fromforeign company is taxed
    • Dividend includes 2(22) of Income tax Act :
    • -RELEASE OF COMPANY ASSET FOR DISTRIBUTION TO SHARE HOLDERS to the extent of divisible profits
    • -Distribution of debenture stock, deposit certificates and bonus to preference shareholders
    • -distribution on liquidation of company
    • -distribution in reduction of capital
    • -any payment by way of loan or advance by closely held company to shareholders.
    • TDS if dividend declared and paid out side india
  • Income tax
    • Dividend includes 2(22) of Income tax Act :
    • -RELEASE OF COMPANY ASSET FOR DISTRIBUTION TO SHARE HOLDERS to the extent of divisible profits
    • -Distribution of debenture stock, deposit certificates and bonus to preference shareholders
    • -distribution on liquidation of company
    • -distribution in reduction of capital
    • -any payment by way of loan or advance by closely held company to shareholders.
    • TDS if dividend declared and paid out side india
  • Income tax
    • Dividend excludes:
    • Buy back of shares(77A of companies Act)
    • Distribution of shares in the scheme of amalgamation, demerger in accordance with section 2(1B) of IT act.
  • Capital profits
    • Profit on sale of asset
    • Profit on revaluation of asset
    • Share premium
    • Profit on forfeiture
    • Profits prior to incorporation
    • Profit on redemption on Debentures
    • Capital redemption reserve account
  • Transfer to reserve
    • Rate of dividend % of profit to
            • reserve
    • 10%-12.5% 2.5%
    • 12.5%-15% 5.0%
    • 15%-20% 7.5%
    • 20% and above 10%
  • Dividend out of reserve
    • Sec 205(A)
    • Rate should not exceed five years average rate of dividend
    • Drawn from reserve should not be more than 1/10 of paid up capital
    • The reserve withdrawn to be used for set off losses
    • Balance of reserve =15% of paid up capital
  • Questions
    • What is meant by dividend?
    • Distinguish between dividend and interest.
    • When does a right to claim dividend arise?
    • Can dividend be declared in an extraordinary meeting?
    • Can interim dividend declared revoked?
    • Who declares the rate of dividend?
    • Can you declare dividend out of reserves?
    • Can dividend declared and paid other than cash?
    • What is time limit for payment of dividend?
    • Is it compulsory to transfer profit to reserve?
  • Questions?
    • State the provision for unpaid dividend
    • Can company declared dividend out of capital profit?
    • What are capital profits?
    • Can company declare dividend twice a year other than interim dividend?
    • Can company declare dividend without passing resolution in adoption of final accounts