CA Inter P2 · Chapter 7 · Question 5 of 9
Emerald Ltd declared dividends of 10%, 12% and 8% in the three immediately preceding financial years. It has incurred a loss in the current financial year up to the end of the quarter immediately before the date on which the Board proposes an interim dividend. What is the maximum rate of interim dividend it can declare?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) 10%
Explanation
The proviso to section 123(3) states that where a company has incurred a loss in the current year up to the end of the quarter immediately preceding the declaration, interim dividend cannot exceed the average of the dividends declared in the immediately preceding three financial years. Average = (10 + 12 + 8) / 3 = 30 / 3 = 10%. The loss does not prohibit interim dividend outright.
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