Explain the following terms/concepts.
(a) Profit is the revenue remaining after all costs are paid. In other words, profit is the difference between revenues and the expenses for a given period.
(b) Profit is the reward to business owners for investing. In small companies, it’s paid directly as income. In corporations, it’s often paid in the form of dividends to shareholders.
(a) The term dividend is derived from Latin word ‘Dividendum’ which means ‘to be divided’. Dividend refers to that portion of profit, which is distributed amongst the shareholders of the company.
(b) The Institute of Chartered Accountants of India has defined Dividend as, “a distribution to shareholders out of profits or reserves available for this purpose.”
(a) In simple meaning interest is a payment made by a borrower to the lender for the money borrowed and is expressed as a rate percent per year. (b) Company has to pay interest if it has borrowed money from creditors like Debentures holders, Depositors, Bond holders, etc.
4. Final Dividend
(a) Final dividend is the dividend which is declared at completion of financial year in Annual General Meeting of the company.
(b) Final dividend is recommended by the Board of Directors and declared by the shareholders by passing ordinary resolution (decision) at Annual General Meeting.
5. Interim Dividend
(a) Interim dividend is the dividend which is declared between two annual general meetings of a company.
(b) Interim dividend is declared when the company makes good profit in the first half of the financial year, i.e. declared before the end of the financial year.
6. Unpaid Dividend
(a) The dividend which has not been paid to the shareholders within 30 days of its declaration is called Unpaid Dividend’.
(b) The amount of final dividend as well as interim dividend may remain unpaid / unclaimed.
7. Unpaid Dividend Account
(a) When dividend is not paid to or claimed by shareholders within a period of 30 days from the date of its declaration, the company shall, transfer the unpaid / unclaimed dividend to a separate account called “Unpaid Dividend Account of Company Limited or Company (Private) Limited.”
(b) The company has to transfer such unpaid / unclaimed dividend within 7 days after the expiry of 30 days from the date of its declaration.
8. Dividend Mandate
(a) Dividend mandate is an authorisation by a shareholder to the company, to pay his or her dividends directly into a bank account.
(b) For this, shareholder has to fill ‘Dividend Mandate Form’ (DMF) and is required to send it to the company. After that, company pay dividend directly to shareholder’s bankers.
(a) If the amount of unpaid dividend remains in the account for 7 years from the date of transfer to this account, a company is required to transfer the amount into “Investors’ Education and Protection Fund” (IEPF).
(b) IEPF has been set up by the Central Government, since 2001. Examples of some amounts to be transferred to IEPF are matured deposits with companies, matured debentures with companies, etc.
10. Rate of Dividend.
(a) Final dividend is the dividend which is declared at completion of financial year in Annual General Meeting of the company. Interim dividend is the dividend which is declared between two annual general meetings of a company.
(b) The rate of interim dividend is less than final dividend. Whereas, the rate of final dividend is generally more than interim dividend.