Study the following case/situation and express your opinion
1. LMN Co Limited decides to declare dividend for the financial year 2018-19 in which it has earned profits less than their expectations.
a) Is Board right in recommending a dividend of Rs. 5/- per share out of free reserves ?
b) Can Board declare the dividend though it is not approved by AGM ?
c) Can the Board give dividend in the form of gifts ?
Ans:
(a) No, board cannot declare the dividend, if It is not approved by AGM. For declaration of dividend, it is mandatory to approve in AGM.
(b) No, board cannot declare the dividend, if It is not approved by AGM. For declaration of dividend, it is mandatory to approve in AGM.
(c) No. Board cannot give dividend in the form of gifts. It can only be given in the form of cash.
2. ABC Co. Ltd. decides to pay Interim Dividend
a) Can it be paid out of free reserves ?
b) Is the Board right in declaring the same at the Board Meeting ?
c) Can the company distribute the same within 30 days of its declaration ?
Ans:
(a) No Interim dividend cannot be paid out of free reserves.
(b) Yes. Board can declare it in Board Meeting. Thus, Board is right in declaring the interim dividend at the Board Meeting.
(c) Yes, the company can distribute the same within 30 days of its declaration.
3. RAJ Company limited decides to pay Interim Dividend
a) Is the Board justified to decide Interim Dividend of ` 5/per share even though profits till date are insufficient ?
b) Can the Board declare it out of Free Reserves ?
c) Can the Board declare it out of Capital ?
Ans:
(a) No. Interim Dividend cannot be declared if the company is not having sufficient profit. Thus, Board is not justified to decide Interim Dividend of 5/- per share even though profits are insufficient.
(b) No. Interim dividend cannot be declared out of free reserves.
(c) No. Interim dividend cannot be declared out of capital. It is declared when the company makes good profit in the first half of the financial year.
4. DIAMOND Co. Ltd. is considering to declare Interim Dividend.
a) In how many days of declaration it should transfer the funds to Dividend Account ?
b) In how many days it must pay it to shareholders?
c) In how many days of declaration it must transfer the funds to the Unpaid Dividend A/c?
Ans:
(a) Within 5 days of declaration, it should transfer the funds to Dividend Account.
(b) It must be paid to shareholders within 30 days of its declaration.
(c) The company has to transfer such unpaid unclaimed dividend within 7 days after the expiry of 30 days (i.e. 37 days) from the date of its declaration.
5. The Board of Directors of STAR Co. Ltd. which is a listed company recommends a dividend of ` 15/- per share to be paid in cash.
a) Is it justified to pay the dividend firstly to its Preference Shareholders and then after to Equity Shareholders?
b) Is the AGM required to approve the same?
c) Can the company pay dividend in cash?
Ans:
(a) Yes. Always dividend is firstly paid to preference shareholders and then to Equity Shareholders. Thus, it is justified to pay the dividend firstly to its Preference Shareholders and then after to Equity Shareholders.
(b) Yes. Dividend must be approved in AGM by passing a special resolution. Thus, AGM is required to approve the same.
(c) Yes. The company can pay dividend in the form of cash and not its kind.
6. GOLD Co. Ltd. declares a dividend of ` 10/- per share for F.Y. 2018-19.
a) Is company under default, if dividend was not paid within 30 days of its declaration ?
b) Is company right in transferring the unpaid dividend to its Debenture Reserve Account ?
c) Does the company have to transfer the amount of unpaid dividend to IEPF after 30 days ?
Ans:
(a) Yes. The company will be under default, if dividend is not paid within 30 days of its declaration.
(b) No, the company is not right in transferring the unpaid dividend to its Debenture Reserve Account. The unpaid dividend has to be transferred to ‘Unpaid Dividend Account’.
(c) No. The company has to transfer the amount of unpaid dividend to IEPF after a period of 7 years.