Distinguish between the Following.

Points

Final Dividend

Interim Dividend

1. Meaning

It is declared and paid after the close of the financial year.

It is declared and paid between two AGMs of an accounting year.

2. Who Declares

It is decided and recommended by the Board of Directors. It is declared by the shareholders in

the AGM.

It is decided and declared by the Board of Directors in the Board Meeting.

3. Authorization

It’s declaration does not need authorization by Articles of Association.

It can be declared only if Articles of Association permits its declaration.

4. When Declared

It is declared at the Annual General Meeting of the company

It is declared between two Annual General Meetings of the company.

5. Rate of Dividend

Rate of final dividend is always higher than Interim Dividend.

Rate of Interim dividend is

lower than final dividend.

6. Source

It is declared from different sources like; current year’s profits, free reserves, capital profits, Money provided by Govt. for dividend, etc.

It is declared out of profits of the current accounting year.

7. Accounting Aspect

It is declared only after the accounts of the year are prepared and finalized.

It is declared before preparation of the final accounts of the company

Points

Dividend

Interest

1. Meaning

Dividend is the return payable to the shareholders of the company for their investment in the share capital.

It is the return payable to the creditors of the company viz. Debenture holder / Deposit holders for the loan given by them to the company.

2. Given to whom

It is paid to the member i.e. the owners of the company.

It is paid to the creditor of the

company.

3. Obligation

It is to be paid only when company has made profits. Therefore no obligation / compulsion to pay dividend.

It is not linked to the profits of the company. Payment of interest is an obligation and is to be paid by the company compulsorily.

4. When Payable

It is payable when a company earns sufficient profit in a year after fulfilling all obligations.

It is payable every year irrespective of the profits of the company.

5. Rate

It is paid at  a  fluctuating  rate to the equity shareholders since it is linked to the profits of company.

Rate of interest is fixed and pre- determined at the time of issue of the security.

6. Resolution

Payment of Final Dividend requires a Board resolution and an ordinary resolution at the AGM while Interim Dividend can be paid by passing only a Board Resolution.

Payment of interest does not require passing of a resolution at any meeting.

7. Accounting Treatment / Aspect

Dividend is an appropriation of profit.

Interest is a charge on profit.