interim dividend out of previous year profits

[yoganand l]

the accounts for the fy 2009-10 were approved by the board in may 2010

the board has recommended a final dividend out of the profits for the fy 2009-10

the date of agm is yet to be finalised by the board.

 

pending the same, the board wants to declare interim dividend.

but the profits upto date are not sufficient for providing for the depreciation of the entire year.

and therefore interim dividend cannot be declared out of current year profits.

 

in this scenario, can the board declare interim dividend from profits of the previous years.

the company has huge reserves in its balance sheet.

 

regards,

yogan.

[yoganand l]

pls. understand that profits are not always linked to the cash flows.. a company may earn huge huge profits (and they might be at accrual stage and locked in debtors).

 

and pls. note that the dividend means cash outflows. so dividend can be paid only when there are cash balances and not when there are profits.

 

but as per law, profit should be there and practically cash should be there. so the board of directors has to carefully plan - profit, law, cash availability.....

 

regards,

yogan.

 

 

 

 

On Fri, Jun 25, 2010 at 6:04 PM, Dalvi, Ratnakar <ratnaka...@rothschild.com> wrote:

 

Sec 2(14A) -  Dividend includes any interim dividend.

 

Sec 205 (1) No dividend shall be declared or paid by a company for any financial year except 1. out of profit for that year arrived after providing for depreciation or 2. our of profits for any previous financial year.......

 

Therefore, in my view technically, interim dividend can be paid out of previous years profits subject to limits mentioned in Payment of Dividend Rules.

 

However, Interim Dividend is generally declared when there are huge profits and instead of waiting for next AGM to declare a dividend, BOD normally declares the dividend. Therefore, it is not from the previous year profits. Why the board has not paid higher dividend for last year? What big financial change that has happend in such a short time that Board now feels that they should declare Interim Dividend? 

 

I would not personally prefer to declare such interim dividend.

 

Ratnakar Dalvi
Tel       +91 22 4081 7034
Mobile  +91 98200 67891

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From: CharteredS...@yahoogroups.co.in [mailto:CharteredS...@yahoogroups.co.in] On Behalf Of veenu thapar
Sent: Friday, June 25, 2010 5:37 PM
To: CharteredS...@yahoogroups.co.in
Subject: Re: [CharteredSecretaries] interim dividend out of previous year profits

 

 

 

Interim dividend is the dividend paid during the FY from the profits of that yr.

so it can not be paid after the lapse of previous year out of that previous yr's profit.

 

 

Veenu Thapar

(Company Secretary)

 

M.No. 9953220453

 

T.U. & Co.

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[Vivek Aggarwal]

Dear Yoganand

 

Pls. clarify if the Board wants to declare interim dividend for the F.Y. 2009-10 or 2010-11. If that is for 2010-11, the Board can declare the sam out of the reserves after complying Section 208.

 

Regards

Vivek Aggarwal

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From: yoganand l <cs.y...@gmail.com>
To: company_secretary <company_...@yahoogroups.com>; CharteredSecretaries <CharteredS...@yahoogroups.co.in>; csmysore <csmy...@googlegroups.com>; csch...@googlegroups.com
Sent: Fri, 25 June, 2010 5:26:26 PM
Subject: [CSMysore] interim dividend out of previous year profits

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[yoganand l]

sir,

 

kindly note that the accounts for the fy 2009-10 are already approved by the board and auditors have signed the same. so i dont want to change them.

 

i have to declare it for the fy 2010-11 only pls..

 

 

 

regards,

yogan.

[Vivek Aggarwal]

Dear Yoganand

 

In that case, the Board can declare the same out of the reserves after complying Companies (Declaration of Dividend out of Reserves) Rules. Section 208 is not applicable, it was wrongly mentioned, sorry for that.

 

Regards
Vivek Aggarwal

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From: yoganand l <cs.y...@gmail.com>

To: csmy...@googlegroups.com
Sent: Mon, 28 June, 2010 10:13:15 AM
Subject: Re: [CSMysore] interim dividend out of previous year profits