Question

Study the following case/situation and express your opinion:

Harsh Company Limited decides to pay an interim dividend.

1. Is the board justified to decide interim dividend of 10 per share even though profits till date are insufficient?
2. Can the board declare a dividend out of free reserves?
3. In how many days must the company pay a dividend to shareholders from the date of declaration?

Answer 1

1. No, the Board is not justified to decide the interim dividend of ₹ 10 per share if the profits till date are insufficient. This is because the Interim Dividend is declared out of profits.
2. No, the Board cannot declare interim dividends out of Free Reserves.
3. No, the Board is not justified because an interim dividend is declared only out of profits. The company must pay the dividend within 30 days from the date of declaration.