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Total Number of Subscribers: 1626 |
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Date:24th July 2010 |
Compiled by: M Sathya Kumar |
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A. COMPULSORY
TRANSFER TO RESERVES 1. No amount need be transferred to Reserves if the
dividend declared does not exceed 10%. 2. No dividend can be declared and paid in excess of
10% unless minimum amount prescribed as under is transferred to Reserves.
3. According to the department, Profits for this
purpose, have to be taken as Net after deducting depreciation (including all
arrears), statutory transfer to Reserves, taxation etc. and including
therein, other adjustments such as transfer from statutory reserves after
compulsory period is over, taxation or other provisions pertaining to
previous year no longer required etc. 4. According to the department, transfer to Reserves
includes only transfer to free reserves and does not include any other
transfer such as investment allowance Reserve etc. B. VOLUNTARY
TRANSFER TO RESERVES 1. Rules have been prescribed for transferring to
reserves in excess of 10% of profits. There is no restriction on transfer up
to 10% of profits. 2. The Rules are as under a. Where a dividend is declared and
the net profit after tax is lower by 20% or more than the average net profit
after tax of the two immediately preceding financial years — no conditions
are to be fulfilled. b. Where a dividend is declared and not covered
under (a) above, the dividend should be at a rate at least equal to the
average of the rates at which dividends were declared in the immediately
preceding three years, provided that, where bonus shares have been issued in
the financial year in which the dividend is declared or in any of the three
preceding years, the dividend declared should be an amount at least equal to
average amount of dividend declared over the three years immediately
preceding the financial year. c. Where no dividend is declared,
the amount proposed to be transferred to the reserves from the current
profits shall be lower than the average amount of dividends declared in the
immediately preceding three years. 3. According to the department, whatever profits are
not transferred or could not be transferred to Reserves have to be carried
forward in the profit and loss account. 4. A new company which does not declare any dividend
would not be able to transfer any amount to Reserves in excess of 10% of
current profits for first three years according to the view expressed by the
Department of Company Affairs, on 26-7-1976. 5. Penalty of up to Rs. 500 with further fine not
exceeding Rs. 50 per day for continuing defaults, has been prescribed by the
rules, for contravention of the rules. C. DECLARATION OF
DIVIDEND OUT OF RESERVES 1. Where in any year there is a loss, or the profits
are inadequate to declare a dividend, the dividend can be declared, out of
the accumulated profits earned by the company in previous years and
transferred to reserves, subject to certain rules. 2. The following conditions have to be fulfilled
before declaring dividend out of reserves : a. Rate of dividend shall not
exceed average of rates of dividend declared in preceding 5 years subject to
a max. of 10%. For calculating average, the "no dividend" years
have to be included and rate should be taken as NIL. b. The total amount to be withdrawn out of reserves
shall not exceed 10% of the aggregate of paid-up capital and free reserves
and this amount shall first be utilised to set off the losses incurred in the
financial year and the balance only may be utilised to distribute dividend as
determined in (a) above. c. The balance in the Reserves
shall not fall below 15% of paid-up share capital after the amount withdrawn
necessary for the purpose of dividend and set off of losses of the current
year. 3. The total amount of Reserves shall mean only free
Reserves not including any Capital Reserve or Statutory Development Rebate
Reserve (amount required by the I.T. Act to be retained in the account). In
other words, free Reserves will mean only distributable Reserve. Article was earlier published in one of the reputed website. |
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