CAF-4 · Chapter 23
Distribution of profits MCQs with Answers
7 multiple-choice questions on Distribution of profits for CAF-4 Business Law Dynamics. Try each one before revealing the answer and explanation.
Practise this chapter interactivelyQuestion 1
During an Annual General Meeting, what restriction applies to the members regarding the final dividend proposed by the board of directors?
- A) The members cannot accept the proposed dividend.
- B) The members can increase the amount of dividend proposed by the directors.
- C) The members cannot increase the amount of dividend proposed by the directors.
- D) The members cannot decrease the amount of dividend proposed by the directors.
Show answer & explanation
Answer: C) The members cannot increase the amount of dividend proposed by the directors.
While members at a general meeting can accept, reject, or decrease the dividend recommended by the board of directors, they do not have the power to increase the proposed dividend amount.
Question 2
What is the maximum penalty for the Chief Executive Officer of a company if there is an unjustified delay in the payment of a declared dividend?
- A) Imprisonment for up to one year and a fine.
- B) Imprisonment for a term not exceeding two years and a fine.
- C) A fine only, without any imprisonment.
- D) Immediate termination from the company.
Show answer & explanation
Answer: B) Imprisonment for a term not exceeding two years and a fine.
In case of a delay in the payment of a declared dividend, the Chief Executive of the company may be imprisoned for a term not exceeding two years and may also be fined.
Question 3
The Board of Directors of Steel Mills Ltd proposed a final dividend of Rs. 5 per share. During the AGM, the shareholders feel the company made exceptional profits and want to increase the dividend to Rs. 8 per share. Can they do this?
- A) Yes, by passing a special resolution.
- B) Yes, because shareholders are the owners of the profit.
- C) No, members in a general meeting cannot increase the amount of dividend proposed by the directors.
- D) No, unless the auditors approve the increase.
Show answer & explanation
Answer: C) No, members in a general meeting cannot increase the amount of dividend proposed by the directors.
Members at an AGM have the right to accept, reject, or decrease the dividend recommended by the board of directors, but they strictly cannot increase it.
Question 4
An interim dividend is deemed to have been declared when:
- A) It is approved by the members in an AGM.
- B) The board of directors passes a resolution approving it.
- C) The money is actually transferred to the shareholders' accounts.
- D) The SECP is notified of the profit.
Show answer & explanation
Answer: B) The board of directors passes a resolution approving it.
Unlike a final dividend which is declared by members at an AGM, an interim dividend is declared by the board of directors and is deemed declared on the date the board approves it.
Question 5
If the Chief Executive Officer (CEO) of a listed company willfully delays the payment of a declared dividend beyond the stipulated 10 working days, what is the statutory penalty?
- A) Only a fine up to Rs. 5 million.
- B) Imprisonment up to 2 years, a fine up to Rs. 5 million, and ineligibility to be a director/CEO for 5 years.
- C) Dismissal from the company without further legal action.
- D) Personal liability to pay the dividend from their own pocket.
Show answer & explanation
Answer: B) Imprisonment up to 2 years, a fine up to Rs. 5 million, and ineligibility to be a director/CEO for 5 years.
The law takes dividend delays seriously. The CEO can face up to 2 years imprisonment, a fine up to Rs. 5 million, and is rendered ineligible to be a director or CEO of any company for the next 5 years.
Question 6
A company revalues its investment property, generating an unrealized gain of Rs. 10 million on its income statement. Can the company declare a cash dividend out of this gain?
- A) Yes, because it is recognized in the profit or loss account.
- B) Yes, if the auditors approve it.
- C) No, dividend cannot be paid out of unrealized gains on investment property.
- D) Yes, but only as a stock dividend (bonus shares).
Show answer & explanation
Answer: C) No, dividend cannot be paid out of unrealized gains on investment property.
Dividends can only be paid out of realized profits. Unrealized gains, such as the revaluation of investment property under fair value models, cannot be used to distribute cash dividends.
Question 7
For what maximum continuous duration can a company close its register of members in a single year to process dividend payments?
- A) 10 days
- B) 15 days
- C) 30 days in the whole year
- D) 45 days in the whole year
Show answer & explanation
Answer: C) 30 days in the whole year
A company may close its register of members for any period or periods not exceeding 30 days in the whole year, after giving not less than 7 days' previous notice.