Justify the following statements.
(1) Dividend is paid out of profits of the company.
Ans:-
(1) Dividend refers to that portion of profit, which is distributed amongst the shareholders of the company.
(2) Dividend cannot be declared out of capital. It is payable out of the profits of the company. It is paid to the members i.e. the owners of the company.
(3) It is to be paid only when company has made profits. There is no obligation or compulsion to pay dividend.
(4) Thus, it is rightly justified that, dividend is paid out of profits of the company.
(2) Interim dividend cannot be paid out of free reserves.
Ans:-
(1) Interim dividend is the dividend which is declared between two annual general meetings of a company.
(2) 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.
(3) Interim dividend is declared by the Board by passing a resolution if they are authorised by articles.
(4) Thus, it is rightly justified that, interim dividend cannot be paid out of any reserves. It can be paid out of company’s profit only.
(3) AGM is crucial for Final Dividend.
Ans:-
(1) Final dividend is the dividend which is declared at the Annual General Meeting (AGM) of the company.
(2) Final dividend is declared at the completion of financial year in Annual General Meeting of the company.
(3) Final dividend is recommended by the Board of Directors and declared by the shareholders by passing ordinary resolution (decision) at Annual General Meeting.
(4) Thus, it is rightly justified that, Annual General Meeting (AGM) is crucial for Final Dividend.
(4) Listed Company has to follow additional guide lines on dividend matters.
Ans:-
(1) Listed company has to express the dividend on per share basis only. It must use electronic mode for payment of dividend such as Electronic Clearing Services (ECS) or National Electronic Fund Transfer (NEFT); as approved by the Reserve Bank of India (RBI).
(2) It has to notify stock exchange where company’s securities are listed at least 2 (two) days in advance of the date of meeting of the Board at which recommendation of final dividend is to be considered.
(3) It should intimate Stock Exchange immediately about declaration of dividend after the Board Meeting.
(4) It should give notice of Book closure to the stock exchange at least 7 (seven) working days before the closure. It should close the Register of members and the Transfer Register. Thus, it is rightly justified that, Listed Company has to follow additional guide lines on dividend matters.
(5) Equity shares get last priority in dividend.
Ans:-
(1) Dividend refers to that portion of profit, which is distributed amongst the shareholders of the company. It is payable only to the registered shareholders of the company.
(2) Preference shareholders are entitled to the dividend before it is paid to the equity shareholders as per the terms of issue of the preference shares.
(3) Equity shareholders will get dividend only after paying it to preference shareholders.
(4) Thus, it is rightly justified that, equity shares get last priority in dividend.
(6) Unpaid dividend cannot be used by the company.
Ans:-
(1) The dividend which has not been paid to the shareholders within 30 days of its declaration is called ‘Unpaid Dividend’.
(2) Unpaid Dividend should be transferred to “Unpaid Dividend Account within 7 days of the expiry of 30 days of declaration i.e. 37 days of its declaration.
(3) Any amount remaining unpaid in the “Unpaid Dividend A/c’ for 7 (seven) years should be transferred to IEPF.
(4) Thus, it is rightly justified that, unpaid dividend cannot be used by the company.
(7) Interest is a liability/obligation of the company.
Ans:-
(1) 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.
(2) Payment of interest is an obligation and is to be paid by the company compulsorily.
(3) Interest is a charge against the profit of the company. Even if company makes no profit, interest should be paid.
(4) Thus, it is rightly justified that, interest is a liability/obligation of the company.
(8) Approval of members is not needed for Interim Dividend.
Ans:-
(1) Interim dividend is the dividend which is declared between two annual general meetings of a company.
(2) Interim dividend is declared by the Board by passing a resolution.
(3) Articles of Association of the company must give approval to the Board of Directors to declare Interim Dividend.
(4) Thus, it is rightly justified that, approval of members (i.e, shareholders) is not needed for Interim Dividend.