Distinguish between the Following.
1. Final Dividend and Interim Dividend
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 |
2. Dividend and Interest
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. |