Question

Distinguish between the following:

Dividend and Interest

Answer 1

Points	Dividend	Interest
Meaning	The dividend is the return payable to the shareholders of the company for their investment in the share capital.	It is the return payable to the creditors of the company viz. Debenture holders/Deposit holders for the loan given by them to the company.
Given to whom	It is paid to the member, i.e., the owners of the company.	It is paid to the creditor of the company.
Obligation	It is to be paid only when the company has made profits. Therefore no obligation/compulsion to pay dividends.	It is not linked to the profits of the company. Payment of interest is an obligation and is to be paid by the company compulsorily.
When Payable	It is payable when a company earns sufficient profit in a year after fulfilling all obligations.	It is payable every year, irrespective of the profits of the company.
Rate	It is paid at a fluctuating rate to the equity shareholders since it is linked to the profits of the company.	The rate of interest is fixed and predetermined at the time of issue of the security.
Resolution	Payment of a Final Dividend requires a Board resolution and an ordinary resolution at the AGM while Interim Dividend can be paid by passing only a Board Resolution.	Payment of interest does not require the passing of a resolution at any meeting.
Accounting Treatment/Aspect	A dividend is an appropriation of profit.	Interest is a charge on profit.