Unit 3 divisible profit

T Y B.com Divisible Profit

1. Unit – 3 : Divisible Profit By RADHIKA Faculty of Auditing J H B W C

2. Introduction Divisible Profit Dividend Profit

3. Cont. “The profits available for the distribution among the shareholders of a company as dividend are called divisible profits.” The profits are calculated by comparing the income and expense of one year. The necessary adjustments are made before calculating the profit of a business concern. The accounting principles are followed. The directors have the right to create provisions, reserves and funds out of business profits under the articles of association.

4. Cont. Keeping in view business conditions, the directors can propose the rate of dividend in annual general meeting. The proposed dividend is paid with in 45 days after the declaration of it. Dividend must be paid out of the revenue profits. The correct calculation is essential for all who depends upon business. It is clear that divisible profits are profits available for shareholders in the shape of dividend.

5. There is no any particular rule about the determination of profit. But company law has laid down the following rules or principles which guides us to determine the divisible profits.

6. Guiding Principles of Div. pro. 1. According The Company Rules 2. Follow The Court Cases 3. Profit Not Out Of Capital 4. Approval Of Shareholders 5. Right Of Proposal 6. Undistributed Profit 7. Depreciation 8. Secrete Reserves 9. Capital Profits 10. Capital Loss 11. Loss Of Provision Year 12. Revaluation Of Assets 13. Revenue Profits 14. Asset Goodwill Written Down & Up

7. Importance of Correct Profit True Disclosure [as auditing] 2. Consistency [fluctuations] 3. Follow Law [computation] 4. Protect Creditors [the value of assets] 5. Correct Valuation [imp. For any situation] 6. Stable Share Prices[induce mass investors] 7. Manager Remuneration [satisfaction] 8. No Undue Favor [favorite] 9. No Dividend Out of Anticipated Profit

8. Difficulties in Computation of Correct/ True Profit Depreciation on the Assets Stock Valuation Valuation of Liabilities Deferred revenue exp. Intangible assets Provisions for Reserves Inflation Other problems

9. Difference between Profit & Divisible Profit Definition According to the law Provisions of Articles of Association Maintenance Dividend

10. Dividend

11. The duties of auditor in regards to dividend Examination of MoA & AoA Examination of minute books Transfer of amount of dividend Examine list of shareholders Gross amt paid acc. To share IT deductible from dividend Net amt payable to sh. Ho after deduction of IT 5. Correct computation of div. pro. In case of inadequacy of profit

12. Cont. 7. Dividend Warrants 8. Unpaid dividend Verify whether the dividend is taxable or tax free Incase of interim dividend he should examine the resolution

13. Depreciation

14. Capital profit

15. Capital Loss

16. Past losses