Query - making provision for dividend on cumulative preference shares when thr is no profit

[Sridevi B.N]

Dear Friends,

 

The Company has issued 1% cumulative redeemable preference share in last year.

 

As per draft balance sheet, there is a loss. 

 

Please advice is it mandatory to make provision for dividend on cumulative preference share or shall we make up to date provision in the year when profit is available for appropriation.  

 

Due to loss in the current financial year and carried forward losses, in my view we should not make any provision for dividend.

 

please advise / guide me.

 

Thanks in advance.

Sridevi.B.N

[ravi p]

Hi Sridevi

 

Your understanding is right.  All dividends including preference shares dividend are appropriation out of profits.  Therefore you cannot appropriate anything in financials unless it is a legal requirement, when there is a loss

 

Regards

 

Ravi P

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From: Sridevi B.N <4sri...@gmail.com>
To: csmy...@googlegroups.com
Sent: Fri, 30 July, 2010 10:25:03 AM
Subject: [CSMysore] Query - making provision for dividend on cumulative preference shares when thr is no profit

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[Sridevi B.N]

Dear Mr. Ravi

 

Is ther any legal requirement for making provision for prefernce share dividend

 

Regards,

sridevi.b.N

[ravi p]

No legal requirement for making provision for preference dividend.

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From: Sridevi B.N <4sri...@gmail.com>
To: csmy...@googlegroups.com

Sent: Fri, 30 July, 2010 11:01:57 AM
Subject: Re: [CSMysore] Query - making provision for dividend on cumulative preference shares when thr is no profit

[VIKAS GUPTA]

Hi Sridevi,

No, there is no legal requirement for making provisions for dividend.

Do one thing make a point in Contigent Liability that ARREARS OF 1% CUMULATIVE PREFERENCE DIVIDEND.

As our company is also in losses and we have issued 4% preference shares to the bankers. We have shown in the contigent liability and I have also shown in other balance sheet also. And whenever the company comes into profit make a payment to them.

 

THANKYOU
CS VIKAS GUPTA
Company Secretary
Shree Krishna Paper Mills & Industries Ltd.
vikas...@skpmil.com
9953620278

[Vivek Aggarwal]

Dear Sridevi

 

You can make up to date provision in the year of Profit & there is no need to make provision in a year of loss.

Regards

Vivek Aggarwal

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From: Sridevi B.N <4sri...@gmail.com>
To: csmy...@googlegroups.com
Sent: Fri, 30 July, 2010 10:25:03 AM

Subject: [CSMysore] Query - making provision for dividend on cumulative preference shares when thr is no profit

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[CS A Rengarajan]

iscussion appeared in other forums,  There is no need to make provision since the cumulative preference shareholder are entitled and the company can accumulate the dividend payable as determined in the preference shareholders terms and condtions.  When you make a provision, then you are liable to deduct tax for which there is no outgo.  The Dividend formalities are to be complied. The best way is put a notes to accounts  that the company has not made adequate profits, the dividend payable to cumulative preference shareholder for the following year 

regards

The Preference shareholders enjoy priority in the payment of dividend over the equity shareholders.The Company has to pay dividend on the preference shares to its holders,irrespective of the fact whether the Company has made profit or not.

However, in the case of cumulative preference shares, the Company can accummulate the dividend payable, in case of loss in any financial year and then pay it out to the holders in the year of profit.

However this privilege is not available to the Non-cumulative preference shareholders, that is to say, if the COmpany has incurred loss in any financial year, then in that case it need not pay dividend  to the preference shareholders, there is no provision for the accummulation of dividend

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csarengarajan
Company Secretary, Chennai
email csaren...@gmail.com
mobile 093810 11200
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