XYZ Ltd. proposes to declare 10% dividend out of General Reserves due to inadequacy of profits in the year ending 31-03-2024. From the following…

Or Amount that can be drawn from reserves for (10% dividend on 80,00,000 i.e.8,00,000) Profits available Current year profit - 1,42,500 Amount which can be utilized from reserves (8,00,000 – 1,42,500) ₹ 6,57,500 Conditions as per Companies (Declaration of dividend out of Reserves) Rules, 2014: Condition I Since 10% is lower than the average rate of dividend (12%), 10% dividend can be declared. Condition II Maximum amount that can be drawn from the accumulated profits and reserves should not exceed 10% of paid up capital plus free reserves ie.10,50,000 [10% of (80,00,000 + 25,00,000)] Condition III The balance of reserves after drawl - 18,42,500 (₹ 25,00,000 – 6,57,500) should not fall below 15% of its paid up capital ie.12,00,000 (15% of 80,00,000) Since all the three conditions are satisfied, the company can withdraw - 6,57,500 from accumulated reserve (as per Declaration and Payment of Dividend Rules, 2014).