Question

    Under which conditions can a company declare or pay

    dividends for a financial year as per the Companies Act?
    A A company may declare or pay dividends only out of the profits for the current financial year, after deducting all operational costs and providing for depreciation Correct Answer Incorrect Answer
    B Dividends can be declared or paid out of the profits of the current financial year or any previous financial years, provided that depreciation has been accounted for, and the profits are remaining undistributed Correct Answer Incorrect Answer
    C A company can declare or pay dividends from any source of funds available, including capital reserves or revaluation surpluses, as long as the amount declared does not exceed the total capital of the company Correct Answer Incorrect Answer
    D Out of money provided by the Central Government or a State Government for the payment of dividend by the company in pursuance of any loan given by that Government Correct Answer Incorrect Answer
    E Either b or d Correct Answer Incorrect Answer

    Solution

    Section 123.Declaration of dividend: (1) No dividend  shall be declared or paid by a company for any financial year except— (a) out of the profits of the company  for that year arrived at after providing for depreciation in accordance with the provisions of sub-section (2), or out of the profits of the company for any previous financial year  or years arrived at after providing for depreciation in accordance with the provisions of that sub-section and remaining undistributed, or out of both; Provided that in computing profits any amount representing unrealised gains, notional gains or revaluation of assets and any change in carrying amount of an asset or of a liability on measurement of the asset or the liability at fair value shall be excluded; or (b) out of money provided by the Central Government or a State Government for the payment of dividend by the company in pursuance of a guarantee given by that Government.

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