Balbharti Maharashtra State Board Class 12 Secretarial Practice Solutions
Chapter 10 Dividend and Interest Textbook Exercise Questions and Answers.
1A. Select the correct answer from the options given below and rewrite the statements.
Question 1.
Dividend is paid to ____________
(a) Shareholder
(b) Debenture holder
(c) Depositor
Answer:
(a) Shareholder
Question 2.
____________ is profit shared by company with a shareholder.
(a) Interest
(b) Rent
(c) Dividend
Answer:
(c) Dividend
Question 3.
Dividend is recommended by ____________
(a) Managing Director
(b) Secretary
(c) Board of Directors
Answer:
(c) Board of Directors
Question 4.
Interim Dividend is declared by ____________
(a) Board of Directors
(b) Debenture holders
(c) Depositors
Answer:
(a) Board of Directors
Question 5.
Final Dividend is declared by ____________
(a) Board of Directors
(b) Shareholders
(c) Depositors
Answer:
(b) Shareholders
Question 6.
Dividend cannot be declared out of ____________
(a) Capital
(b) Profit
(c) Reserves
Answer:
(a) Capital
Question 7.
Dividend amount should be transferred in a separate Bank Account within ____________ days of its declaration.
(a) 5
(b) 15
(c) 50
Answer:
(a) 5
Question 8.
Dividend should be paid within ____________ days of its declaration.
(a) 3
(b) 13
(c) 30
Answer:
(c) 30
Question 9.
____________ holders get dividend from residual profits.
(a) Equity share
(b) Preference share
(c) Debenture
Answer:
(a) Equity Share
Question 10.
Dividend is paid first to ____________ shareholders.
(a) Equity
(b) Preference
(c) Deferred
Answer:
(b) Preference
Question 11.
____________ warrant is a cheque containing dividend amount sent by company to the shareholders.
(a) Dividend
(b) Share
(c) Interest
Answer:
(a) Dividend
Question 12.
IEPF is created by ____________ where unpaid dividend is transferred by company.
(a) Central Government
(b) Company
(c) Shareholders
Answer:
(a) Central Government
Question 13.
Payment of ____________ Dividend must be authorised by the Articles of Association.
(a) Interim
(b) Final
(c) Bonus
Answer:
(a) Interim
Question 14.
____________ is a return paid to creditors by the company.
(a) Dividend
(b) Interest
(c) Rent
Answer:
(b) Interest
Question 15.
____________ is not linked to profits of the company.
(a) Dividend
(b) Interest
(c) Bonus
Answer:
(b) Interest
1B. Match the pairs.
Question (I).
Answer:
Question (II).
Answer:
1C. Write a word or term or a phrase that can substitute each of the following statements.
Question 1.
The return on investment is paid to the shareholders of the company.
Answer:
Dividend
Question 2.
The meeting where the final dividend is declared.
Answer:
AGM (Annual General Meeting)
Question 3.
The company has to intimate the stock exchange about the declaration of dividends.
Answer:
Listed company
Question 4.
The shareholders get dividends at a fixed rate.
Answer:
Preference
Question 5.
The shareholders get dividends at a fluctuating rate.
Answer:
Equity
Question 6.
Request by the shareholder in the prescribed form for payment of dividend into shareholders bank amount.
Answer:
Dividend Mandate
Question 7.
The number of days within which payment of dividend be completed by the company after its declaration.
Answer:
30 days
Question 8.
Dividend declared between two AGMs.
Answer:
Interim Dividend
Question 9.
Dividend decided and declared by the Board.
Answer:
Interim Dividend
Question 10.
The return is paid to the creditors by the company.
Answer:
Interest
1D. State whether the following statements are True or False.
Question 1.
The dividend is paid to registered shareholders of the company.
Answer:
True
Question 2.
The dividend is decided by the Board.
Answer:
True
Question 3.
The dividend is decided by the shareholders.
Answer:
False
Question 4.
Dividend once declared cannot be revoked.
Answer:
True
Question 5.
Dividend cannot be paid out of capital.
Answer:
True
Question 6.
Shareholders decide about the rate and amount of profit to be given as dividends.
Answer:
False
Question 7.
All categories of shareholders get a fixed-rate dividend.
Answer:
False
Question 8.
IEPF is the fund created by the company.
Answer:
False
Question 9.
Interest is a liability for the company.
Answer:
True
Question 10.
Interest is paid to shareholders of the company.
Answer:
False
1E. Find the odd one.
Question 1.
Final Dividend, Interim Dividend, Interest
Answer:
Interest
Question 2.
Out of Capital, Out of free reserve, Out of money given by the government
Answer:
Out of Capital
Question 3.
Dividend Account, Dividend Mandate, Unpaid/ Unclaimed Dividend Account
Answer:
Dividend Mandate
Question 4.
Dividend warrant, Dividend Mandate, Cheque
Answer:
Dividend Mandate
1F. Complete the sentences.
Question 1.
Word dividend is derived from Latin term ____________
Answer:
Dividendum
Question 2.
Dividend is paid to ____________
Answer:
registered shareholders
Question 3.
Dividend can be declared only on recommendation of ____________
Answer:
Board of Directors
Question 4.
Dividend must be paid in ____________
Answer:
cash
Question 5.
The meeting at which final dividend is approved is ____________
Answer:
Annual General Meeting
Question 6.
Dividend cannot be paid out of ____________
Answer:
capital
Question 7.
Interim dividend is decided and declared by ____________
Answer:
Board of Directors
Question 8.
Predecided and a fixed rate of dividend is paid to ____________
Answer:
preference shareholder
Question 9.
Payment of dividend must be completed within ____________
Answer:
30 days
Question 10.
Payment of Interim Dividend needs to be authorized by ____________
Answer:
Articles of Association
Question 11.
The obligatory payment made by company to its creditors is called as ____________
Answer:
Interest
1G. Select the correct option from the bracket.
Question 1.
(Latin term, Creditors, At AGM, At Board Meeting, IEPF)
Answer:
Question 2.
(Fixed rate Dividend, Dividend at a Fluctuating Rate, Interest, within 30 days, Unclaimed/Unpaid Dividend)
Answer:
1H. Answer in one sentence.
Question 1.
What is Dividend?
Answer:
The dividend is a share in distributable profits of the company to which the shareholder in entitled when formally declared by the company.
Question 2.
Who has the right to recommend dividends?
Answer:
The Board of directors has the right to recommend.
Question 3.
What is a Final Dividend?
Answer:
The final dividend is that dividend that is declared and paid after the close of the financial year.
Question 4.
What is an Interim Dividend?
Answer:
The interim dividend is that dividend that is declared and paid between two AGMs of an accounting year.
Question 5.
Who declares Interim Dividend?
Answer:
The Board of directors declares Interim dividends.
Question 6.
Which shares get dividends at a fixed rate?
Answer:
Preference shares get dividends at a fixed rate.
Question 7.
Which shares get dividends at a fluctuating rate?
Answer:
Equity shares get dividends at a fluctuating rate.
Question 8.
At which meeting Interim Dividend is decided and declared?
Answer:
Interim Dividend is decided and declared in Board Meeting.
Question 9.
What is Interest?
Answer:
Interest is the price paid for the productive services rendered by capital
Question 10.
State the time within which unpaid dividends be transferred to the unpaid dividend account.
Answer:
The unpaid dividend should be transferred within 7 days of the end of 30 days within which payment has to be made.
1I. Correct the underlined word and rewrite the following sentences.
Question 1.
The dividend is paid to creditors.
Answer:
The dividend is paid to shareholders.
Question 2.
Interest is paid to shareholders.
Answer:
Interest is paid to creditors.
Question 3.
The final Dividend is paid between two AGM.
Answer:
Interim Dividend is paid between two AGM.
Question 4.
Special Resolution must be passed to declare the Final Dividend.
Answer:
An ordinary resolution must be passed to declare the Final Dividend.
Question 5.
The dividend must be paid within 60 days of its declaration.
Answer:
The dividend must be paid within 30 days of its declaration.
Question 6.
The Dividend to be paid should be transferred to Dividend A/c within 30 days of its declaration.
Answer:
The Dividend to be paid should be transferred to Dividend A/c within 5 days of its declaration
Question 7.
The dividend is an obligation to be paid by a company every year.
Answer:
Interest is an obligation to be paid by a company every year.
Question 8.
Preference shareholders are given the last priority in the payment of dividends.
Answer:
Equity shareholders are given the last priority in the payment of dividends.
Question 9.
Preference shareholders get dividends from residual profits.
Answer:
Equity shareholders get dividends from residual profits.
Question 10.
Dividend is payable every year irrespective of profits made by the company.
Answer:
Interest is payable every year irrespective of profits made by the company.
1J. Arrange in proper order.
Question 1.
(a) Recommendation of Dividend.
(b) Checking sufficiency of profits
(c) Board Meeting
Answer:
(a) Checking sufficiency of profits
(b) Board Meeting
(c) Recommendation of Dividend
Question 2.
(a) Transfer to Dividend Account
(b) Transfer to IEPF
(c) Transfer to Unpaid Dividend Account
Answer:
(a) Transfer to Dividend Account
(b) Transfer to Unpaid Dividend Account
(c) Transfer to IEPF
Question 3.
(a) Closure of Register of Members.
(b) Intimate Stock Exchange of Board Meeting.
(c) Intimate Stock Exchange of declaration of dividend.
Answer:
(a) Intimate Stock Exchange of Board Meeting
(b) Intimate Stock Exchange of declaration of dividend
(c) Closure of Register of Members
Question 4.
(a) Decision on Rate of Dividend
(b) Transfer of IEPF
(c) Payment of Dividend
Answer:
(a) Decision on Rate of Dividend
(b) Payment of Dividend
(c) Transfer to IEPF
Question 5.
(a) Payment of Interim Dividend
(b) Board meeting deciding and declaring Interim Dividend
(c) Authorization of Articles of Association
Answer:
(a) Authorization of Articles of Association
(b) Board meeting deciding and declaring Interim Dividend
(c) Payment of Interim Dividend
2. Explain the following terms/concepts.
Question 1.
Profit
Answer:
Profit is the financial gain from business activity minus expenses. Profit is the income remaining after deducting total costs from total revenue. It is also called financial gain. Profit is the difference between revenues and expenses for a given period. It is the tool for measuring the success of the business. Without profit, the company cannot survive in the market.
Question 2.
Dividend
Answer:
The term dividend is derived from the Latin word ‘Dividendum’ which means that which is to be divided. A dividend is the portion of the company’s earnings distributed to the shareholders decided and managed by the company’s board of directors. The dividend is a share in distributable profits of the company Shareholder is entitled to receive the dividend when it is formally declared by the company
Question 3.
Interest
Answer:
Interest is the cost of borrowing money typically expressed as an annual percentage of a loan. The money people earn on their savings is called Interest. Interest is paid to the lender by the borrower, in case of a loan or from the financial institution to the depositor, in the case of a savings account. In financial terms, it is a payment made for using the money of another i.e. borrower takes money from the lender. Interest is the cost of renting the money for the borrower and it is the income from lending money for the lender.
Question 4.
Final Dividend
Answer:
The final dividend is declared and paid after the financial year is closed. The final dividend is decided and recommended by the Board of Directors. The final dividend is approved by the shareholder in the AGM. The declaration of the final dividend does not require authorization of Articles of Association. The rate of the final dividend is always higher than the Interim dividend. It is declared from sources like the current year’s profits, money provided by Government for dividends, etc.
Question 5.
Interim Dividend
Answer:
The interim dividend is the dividend that is declared and paid in the middle of an accounting year i.e. before the finalization of accounts for the year. Dividend declared by the Board of Directors between two Annual General Meetings is called Interim Dividend. The interim dividend is paid in the middle of the accounting year.
Question 6.
Unpaid Dividend
Answer:
Dividend declared by the company but neither paid to nor claimed by a shareholder within 30 days of its declaration is termed as Unpaid and Unclaimed Dividend.
Question 7.
Unpaid Dividend Account
Answer:
A dividend declared by the company but neither paid to nor claimed by a shareholder is called an Unpaid/Unclaimed Dividend. This unpaid/unclaimed dividend should be transferred to the Unpaid/Unclaimed Account within 30 days of its declaration. This ‘Unpaid Dividend Account’ is opened in a scheduled Bank by the company.
Question 8.
Dividend Mandate
Answer:
The dividend is paid by different modes of payment like cash, cheque, or warrant or by electronic mode. It can also be paid by using the Dividend Mandate. If the shareholder wishes to get dividend credited directly in the Bank Account he is required to send a request in a prescribed form which is called ‘Dividend Mandate’. The dividend Mandate authorizes the company to pay dividends directly to shareholders’ bankers.
Question 9.
IEPF
Answer:
IEPF means Investors Education and Protection Fund. Any amount in the Unpaid Dividend Account of a company that is unpaid/ unclaimed for a period of 7 (seven years) from the date of such a transfer shall be, transferred to ‘Investors Education and Protection Fund’. The claimant can claim his dividend by filling the prescribed form and submitting the necessary documents. The claimant needs to follow the procedure.
Question 10.
Rate of Dividend
Answer:
The return that a shareholder receives on his investment from the company is called a dividend. The dividend is always declared by the company on the face value of a share irrespective of its market value. The rate of dividend is expressed as a percentage of the face value of a share per annum.
3. Study the following case/situation and express your opinion.
1. LMN Co Limited decides to declare a dividend for the financial year 2018-19 in which it has earned profits less than their expectations.
Question (a).
Is Board right in recommending a dividend of Rs. 5/- per share out of free reserves?
Answer:
Yes, Board is right in recommending a dividend of Rs. 5/- per share out of free reserves, as dividends can be paid out of free reserves.
Question (b).
Can Board declare the dividend though it is not approved by AGM?
Answer:
No Board cannot declare the divided if it is not approved by AGM as dividends should be approved by shareholders by passing an ordinary resolution in AGM.
Question (c).
Can the Board give dividends in the form of gifts?
Answer:
No Board cannot give dividends in the form of gifts. It must be paid in cash, not in kind.
2. ABC Co. Ltd. decides to pay Interim Dividend.
Question (a).
Can it be paid out of free reserves?
Answer:
No. the Interim Dividend cannot be paid out of free reserves.
Question (b).
Is the Board right in declaring the same at the Board Meeting?
Answer:
Yes. Board is right in declaring the same at the Board meeting as it has the power to declare an Interim Dividend.
Question (c).
Can the company distribute the same within 30 days of its declaration?
Answer:
Yes, after the declaration, the Interim dividend should be paid within 30 days of its declaration.
3. RAJ Company limited decides to pay Interim Dividend.
Question (a).
Is the Board justified to decide Interim Dividend of Rs. 5/per share even though profits to date are insufficient?
Answer:
The interim dividend is paid out of profits between two annual general meetings. It cannot be paid out of any reserves. So it is not justified.
Question (b).
Can the Board declare it out of Free Reserves?
Answer:
No Board cannot declare an Interim dividend out of free reserves.
Question (c).
Can the Board declare it out of Capital?
Answer:
No Board cannot declare out of capital.
4. DIAMOND Co. Ltd. is considering declaring an Interim Dividend.
Question (a).
In how many days of the declaration it should transfer the funds to Dividend Account?
Answer:
The interim dividend must be transferred to the Dividend Account within 5 days of its declaration.
Question (b).
In how many days it must pay it to shareholders?
Answer:
The interim dividend should be paid within 30 days of its declaration to shareholders.
Question (c).
In how many days of the declaration it must transfer the funds to the Unpaid Dividend A/c?
Answer:
Unpaid/unclaimed Interim dividend should be transferred to ‘Unpaid Dividend Account’ within 7 days of the expiry of 30 days of declaration i.e. 37 days of its declaration.
5. The Board of Directors of STAR Co. Ltd. which is a listed company recommends a dividend of Rs. 15/- per share to be paid in cash.
Question (a).
Is it justified to pay the dividend firstly to its Preference Shareholders and then after to Equity Shareholders?
Answer:
Yes, because preference shares are entitled to the dividend before it is paid to the equity shareholder. Equity shareholders get dividends from residual profits i.e. after paying to preference shareholders.
Question (b).
Is the AGM required to approve the same?
Answer:
Yes for declaration of final divided Approval of AGM is a must.
Question (c).
Can the company pay dividends in cash?
Answer:
Yes, the company pay a dividend in cash and not in kind.
6. GOLD Co. Ltd. declares a dividend of Rs. 10/- per share for F.Y. 2018-19.
Question (a).
Is the company under default, if the dividend was not paid within 30 days of its declaration?
Answer:
Yes, the company is to default as the time limit within which the company must pay dividends after the declaration is 30 days.
Question (b).
Is the company right in transferring the unpaid dividend to its Debenture Reserve Account?
Answer:
No, the company has to transfer the total amount of dividend which remains unpaid/unclaimed to the ‘Unpaid Dividend Account.
Question (c).
Does the company have to transfer the amount of unpaid dividend to IEPF after 30 days?
Answer:
No, any amount in the unpaid dividend account of a company that remains unpaid/unclaimed for a period of 7 years from the date of such a transfer, should be transferred to (IEPF), ‘Investors Education and Protection Fund’.
4. Distinguish between the following:
Question 1.
Final Dividend and Interim Dividend
Answer:
Question 2.
Dividend and Interest
Answer:
5. Answer in brief.
Question 1.
State any four points to be kept in mind by a listed company with respect to dividends.
Answer:
When a company lists its shares on Stock Exchange, additional listing agreements are to be followed which are as follows:
Question 2.
Discuss any four features of dividend.
Answer:
Question 3.
Explain the features of interest.
Answer:
Interest is the cost of borrowing money typically expressed as an annual percentage of a loan. The money people earn on their savings is called Interest. Interest is paid to the lender by the borrower in case of a loan or from the financial institution to the depositor in the case of a savings account. In financial terms, it is a payment made for using the money of another i.e. borrower takes money from the lender. Interest is the cost of renting the money for the borrower and it is the income from lending money for the lender.
Features:
6. Justify the following statements.
Question 1.
The dividend is paid out of the profits of the company.
Answer:
Question 2.
Interim dividends cannot be paid out of free reserves.
Answer:
Question 3.
Annual General Meeting (AGM) is crucial for Final Dividend.
OR
The final Dividend is declared only after the accounts are prepared and finalized.
Answer:
Question 4.
Listed Company has to follow additional guidelines on dividend matters.
Answer:
Question 5.
Equity shareholders get the last priority in receiving dividends.
Answer:
Question 6.
Unpaid dividends cannot be used by the company.
Answer:
Question 7.
Interest is a liability/obligation of the company.
OR
Interest is paid to the creditor of the company.
Answer:
Question 8.
Approval of members is not needed for Interim Dividends.
Answer:
7. Answer the following questions.
Question 1.
Define Dividend and explain its features.
Answer:
The term dividend is derived from the Latin word ‘Dividendum’ which means that which is to be divided. A dividend is the portion of the company’s earnings distributed to the shareholders decided and managed by the company’s board of directors.
The dividend is a share of distributable profits of the company. A shareholder is entitled to receive the dividend when it is formally declared by the company.
Definitions:
Features of Dividend:
Question 2.
What is Interest? Explain its features.
Answer:
Interest is the cost of borrowing money typically expressed as an annual percentage of a loan. The money people earn on their savings is called Interest. Interest is paid to the lender by the borrower in case of a loan or from the financial institution to the depositor in the case of a savings account. In financial terms, it is a payment made for using the money of another i.e. borrower takes money from the lender. Interest is the cost of renting the money for the borrower and it is the income from lending money for the lender.
Features:
Question 3.
Discuss legal provisions for declaration of dividend.
Answer:
The term dividend is derived from the Latin word ‘Dividendum’ which means that which is to be divided.
A dividend means the profit of a company that is not retained in Legal Provisions for declaration of Dividend.
(i) Board Meeting:
(ii) Shareholders’ Approval:
(iii) Separate Bank Account:
The company must deposit the dividend amount in a separate bank account i.e. “Dividend Account” opened in a scheduled bank. The dividend must be transferred to this account within 5 days of its declaration.
(iv) Prohibition to pay Dividend:
Question 4.
Explain Interim Dividend.
Answer:
Features of Interim Dividend:
Chapter 10 Dividend and Interest Textbook Exercise Questions and Answers.
1A. Select the correct answer from the options given below and rewrite the statements.
Question 1.
Dividend is paid to ____________
(a) Shareholder
(b) Debenture holder
(c) Depositor
Answer:
(a) Shareholder
Question 2.
____________ is profit shared by company with a shareholder.
(a) Interest
(b) Rent
(c) Dividend
Answer:
(c) Dividend
Question 3.
Dividend is recommended by ____________
(a) Managing Director
(b) Secretary
(c) Board of Directors
Answer:
(c) Board of Directors
Question 4.
Interim Dividend is declared by ____________
(a) Board of Directors
(b) Debenture holders
(c) Depositors
Answer:
(a) Board of Directors
Question 5.
Final Dividend is declared by ____________
(a) Board of Directors
(b) Shareholders
(c) Depositors
Answer:
(b) Shareholders
Question 6.
Dividend cannot be declared out of ____________
(a) Capital
(b) Profit
(c) Reserves
Answer:
(a) Capital
Question 7.
Dividend amount should be transferred in a separate Bank Account within ____________ days of its declaration.
(a) 5
(b) 15
(c) 50
Answer:
(a) 5
Question 8.
Dividend should be paid within ____________ days of its declaration.
(a) 3
(b) 13
(c) 30
Answer:
(c) 30
Question 9.
____________ holders get dividend from residual profits.
(a) Equity share
(b) Preference share
(c) Debenture
Answer:
(a) Equity Share
Question 10.
Dividend is paid first to ____________ shareholders.
(a) Equity
(b) Preference
(c) Deferred
Answer:
(b) Preference
Question 11.
____________ warrant is a cheque containing dividend amount sent by company to the shareholders.
(a) Dividend
(b) Share
(c) Interest
Answer:
(a) Dividend
Question 12.
IEPF is created by ____________ where unpaid dividend is transferred by company.
(a) Central Government
(b) Company
(c) Shareholders
Answer:
(a) Central Government
Question 13.
Payment of ____________ Dividend must be authorised by the Articles of Association.
(a) Interim
(b) Final
(c) Bonus
Answer:
(a) Interim
Question 14.
____________ is a return paid to creditors by the company.
(a) Dividend
(b) Interest
(c) Rent
Answer:
(b) Interest
Question 15.
____________ is not linked to profits of the company.
(a) Dividend
(b) Interest
(c) Bonus
Answer:
(b) Interest
1B. Match the pairs.
Question (I).
| Group ‘A’ | Group ‘B’ |
| (a) Dividend | (1) Equity Shareholders |
| (b) Interest | (2) Appropriation of Profit |
| (c) Interim Dividend | (3) Recommendation of Secretary |
| (d) Final Dividend | (4) Registrar of Company |
| (e) Fluctuating Rate of Dividend | (5) Obligatory to pay |
| (6) Decided and Declared by the Board of Directors | |
| (7) Decided by Board and Declared by Members | |
| (8) Decided by President of India | |
| (9) Company not allowed to pay | |
| (10) Declared by Government of India |
| Group ‘A’ | Group ‘B’ |
| (a) Dividend | (2) Appropriation of Profit |
| (b) Interest | (5) Obligatory to pay |
| (c) Interim Dividend | (6) Decided and Declared by the Board of Directors |
| (d) Final Dividend | (7) Decided by Board and Declared by Members |
| (e) Fluctuating Rate of Dividend | (1) Equity Shareholders |
| Group ‘A’ | Group ‘B’ |
| (a) Dividend | (1) Inform stock exchange about dividend declaration |
| (b) Interest | (2) Creditors |
| (c) IEPF | (3) Registered Shareholders |
| (d) Unpaid Dividend Account | (4) Balance of Unpaid Dividend Transferred |
| (e) Listed Company | (5) Unregistered Company |
| (6) Non-listed company | |
| (7) Unpaid/Unclaimed Dividend | |
| (8) Balance of unpaid bonus transferred here | |
| (9) Must inform the government about dividend declaration | |
| (10) General Public |
| Group ‘A’ | Group ‘B’ |
| (a) Dividend | (3) Registered Shareholders |
| (b) Interest | (2) Creditors |
| (c) IEPF | (4) Balance of Unpaid Dividend Transferred |
| (d) Unpaid Dividend Account | (7) Unpaid/Unclaimed Dividend |
| (e) Listed Company | (1) Inform stock exchange about dividend declaration |
Question 1.
The return on investment is paid to the shareholders of the company.
Answer:
Dividend
Question 2.
The meeting where the final dividend is declared.
Answer:
AGM (Annual General Meeting)
Question 3.
The company has to intimate the stock exchange about the declaration of dividends.
Answer:
Listed company
Question 4.
The shareholders get dividends at a fixed rate.
Answer:
Preference
Question 5.
The shareholders get dividends at a fluctuating rate.
Answer:
Equity
Question 6.
Request by the shareholder in the prescribed form for payment of dividend into shareholders bank amount.
Answer:
Dividend Mandate
Question 7.
The number of days within which payment of dividend be completed by the company after its declaration.
Answer:
30 days
Question 8.
Dividend declared between two AGMs.
Answer:
Interim Dividend
Question 9.
Dividend decided and declared by the Board.
Answer:
Interim Dividend
Question 10.
The return is paid to the creditors by the company.
Answer:
Interest
1D. State whether the following statements are True or False.
Question 1.
The dividend is paid to registered shareholders of the company.
Answer:
True
Question 2.
The dividend is decided by the Board.
Answer:
True
Question 3.
The dividend is decided by the shareholders.
Answer:
False
Question 4.
Dividend once declared cannot be revoked.
Answer:
True
Question 5.
Dividend cannot be paid out of capital.
Answer:
True
Question 6.
Shareholders decide about the rate and amount of profit to be given as dividends.
Answer:
False
Question 7.
All categories of shareholders get a fixed-rate dividend.
Answer:
False
Question 8.
IEPF is the fund created by the company.
Answer:
False
Question 9.
Interest is a liability for the company.
Answer:
True
Question 10.
Interest is paid to shareholders of the company.
Answer:
False
1E. Find the odd one.
Question 1.
Final Dividend, Interim Dividend, Interest
Answer:
Interest
Question 2.
Out of Capital, Out of free reserve, Out of money given by the government
Answer:
Out of Capital
Question 3.
Dividend Account, Dividend Mandate, Unpaid/ Unclaimed Dividend Account
Answer:
Dividend Mandate
Question 4.
Dividend warrant, Dividend Mandate, Cheque
Answer:
Dividend Mandate
1F. Complete the sentences.
Question 1.
Word dividend is derived from Latin term ____________
Answer:
Dividendum
Question 2.
Dividend is paid to ____________
Answer:
registered shareholders
Question 3.
Dividend can be declared only on recommendation of ____________
Answer:
Board of Directors
Question 4.
Dividend must be paid in ____________
Answer:
cash
Question 5.
The meeting at which final dividend is approved is ____________
Answer:
Annual General Meeting
Question 6.
Dividend cannot be paid out of ____________
Answer:
capital
Question 7.
Interim dividend is decided and declared by ____________
Answer:
Board of Directors
Question 8.
Predecided and a fixed rate of dividend is paid to ____________
Answer:
preference shareholder
Question 9.
Payment of dividend must be completed within ____________
Answer:
30 days
Question 10.
Payment of Interim Dividend needs to be authorized by ____________
Answer:
Articles of Association
Question 11.
The obligatory payment made by company to its creditors is called as ____________
Answer:
Interest
1G. Select the correct option from the bracket.
Question 1.
| Group ‘A’ | Group ‘B’ |
| (a) Dividendum | (1) ……………….. |
| (b) Interest | (2) ……………….. |
| (c) ………………… | (3) Final Dividend |
| (d) ……………….. | (4) Interim Dividend |
| (e) Government Fund | (5) ………………… |
Answer:
| Group ‘A’ | Group ‘B’ |
| (a) Dividendum | (1) At Board Meeting |
| (b) Interest | (2) Latin term |
| (c) IEPF | (3) Final Dividend |
| (d) At AGM | (4) Interim Dividend |
| (e) Government Fund | (5) Creditors |
| Group ‘A’ | Group ‘B’ |
| (a) Preference Shares | (1) …………………… |
| (b) Equity Shares | (2) …………………….. |
| (c) Deposit holders | (3) …………………….. |
| (d) ……………………. | (4) Payment of Dividend |
| (e) ……………………. | (5) Dividend Declared but not paid/claimed |
Answer:
| Group ‘A’ | Group ‘B’ |
| (a) Preference Shares | (1) Unclaimed/Unpaid Dividend |
| (b) Equity Shares | (2) Within 30 days |
| (c) Deposit holders | (3) Interest |
| (d) Fixed rate of Dividend | (4) Payment of Dividend |
| (e) Dividend at a Fluctuating Rate | (5) Dividend Declared but not paid/claimed |
Question 1.
What is Dividend?
Answer:
The dividend is a share in distributable profits of the company to which the shareholder in entitled when formally declared by the company.
Question 2.
Who has the right to recommend dividends?
Answer:
The Board of directors has the right to recommend.
Question 3.
What is a Final Dividend?
Answer:
The final dividend is that dividend that is declared and paid after the close of the financial year.
Question 4.
What is an Interim Dividend?
Answer:
The interim dividend is that dividend that is declared and paid between two AGMs of an accounting year.
Question 5.
Who declares Interim Dividend?
Answer:
The Board of directors declares Interim dividends.
Question 6.
Which shares get dividends at a fixed rate?
Answer:
Preference shares get dividends at a fixed rate.
Question 7.
Which shares get dividends at a fluctuating rate?
Answer:
Equity shares get dividends at a fluctuating rate.
Question 8.
At which meeting Interim Dividend is decided and declared?
Answer:
Interim Dividend is decided and declared in Board Meeting.
Question 9.
What is Interest?
Answer:
Interest is the price paid for the productive services rendered by capital
Question 10.
State the time within which unpaid dividends be transferred to the unpaid dividend account.
Answer:
The unpaid dividend should be transferred within 7 days of the end of 30 days within which payment has to be made.
1I. Correct the underlined word and rewrite the following sentences.
Question 1.
The dividend is paid to creditors.
Answer:
The dividend is paid to shareholders.
Question 2.
Interest is paid to shareholders.
Answer:
Interest is paid to creditors.
Question 3.
The final Dividend is paid between two AGM.
Answer:
Interim Dividend is paid between two AGM.
Question 4.
Special Resolution must be passed to declare the Final Dividend.
Answer:
An ordinary resolution must be passed to declare the Final Dividend.
Question 5.
The dividend must be paid within 60 days of its declaration.
Answer:
The dividend must be paid within 30 days of its declaration.
Question 6.
The Dividend to be paid should be transferred to Dividend A/c within 30 days of its declaration.
Answer:
The Dividend to be paid should be transferred to Dividend A/c within 5 days of its declaration
Question 7.
The dividend is an obligation to be paid by a company every year.
Answer:
Interest is an obligation to be paid by a company every year.
Question 8.
Preference shareholders are given the last priority in the payment of dividends.
Answer:
Equity shareholders are given the last priority in the payment of dividends.
Question 9.
Preference shareholders get dividends from residual profits.
Answer:
Equity shareholders get dividends from residual profits.
Question 10.
Dividend is payable every year irrespective of profits made by the company.
Answer:
Interest is payable every year irrespective of profits made by the company.
1J. Arrange in proper order.
Question 1.
(a) Recommendation of Dividend.
(b) Checking sufficiency of profits
(c) Board Meeting
Answer:
(a) Checking sufficiency of profits
(b) Board Meeting
(c) Recommendation of Dividend
Question 2.
(a) Transfer to Dividend Account
(b) Transfer to IEPF
(c) Transfer to Unpaid Dividend Account
Answer:
(a) Transfer to Dividend Account
(b) Transfer to Unpaid Dividend Account
(c) Transfer to IEPF
Question 3.
(a) Closure of Register of Members.
(b) Intimate Stock Exchange of Board Meeting.
(c) Intimate Stock Exchange of declaration of dividend.
Answer:
(a) Intimate Stock Exchange of Board Meeting
(b) Intimate Stock Exchange of declaration of dividend
(c) Closure of Register of Members
Question 4.
(a) Decision on Rate of Dividend
(b) Transfer of IEPF
(c) Payment of Dividend
Answer:
(a) Decision on Rate of Dividend
(b) Payment of Dividend
(c) Transfer to IEPF
Question 5.
(a) Payment of Interim Dividend
(b) Board meeting deciding and declaring Interim Dividend
(c) Authorization of Articles of Association
Answer:
(a) Authorization of Articles of Association
(b) Board meeting deciding and declaring Interim Dividend
(c) Payment of Interim Dividend
2. Explain the following terms/concepts.
Question 1.
Profit
Answer:
Profit is the financial gain from business activity minus expenses. Profit is the income remaining after deducting total costs from total revenue. It is also called financial gain. Profit is the difference between revenues and expenses for a given period. It is the tool for measuring the success of the business. Without profit, the company cannot survive in the market.
Question 2.
Dividend
Answer:
The term dividend is derived from the Latin word ‘Dividendum’ which means that which is to be divided. A dividend is the portion of the company’s earnings distributed to the shareholders decided and managed by the company’s board of directors. The dividend is a share in distributable profits of the company Shareholder is entitled to receive the dividend when it is formally declared by the company
Question 3.
Interest
Answer:
Interest is the cost of borrowing money typically expressed as an annual percentage of a loan. The money people earn on their savings is called Interest. Interest is paid to the lender by the borrower, in case of a loan or from the financial institution to the depositor, in the case of a savings account. In financial terms, it is a payment made for using the money of another i.e. borrower takes money from the lender. Interest is the cost of renting the money for the borrower and it is the income from lending money for the lender.
Question 4.
Final Dividend
Answer:
The final dividend is declared and paid after the financial year is closed. The final dividend is decided and recommended by the Board of Directors. The final dividend is approved by the shareholder in the AGM. The declaration of the final dividend does not require authorization of Articles of Association. The rate of the final dividend is always higher than the Interim dividend. It is declared from sources like the current year’s profits, money provided by Government for dividends, etc.
Question 5.
Interim Dividend
Answer:
The interim dividend is the dividend that is declared and paid in the middle of an accounting year i.e. before the finalization of accounts for the year. Dividend declared by the Board of Directors between two Annual General Meetings is called Interim Dividend. The interim dividend is paid in the middle of the accounting year.
Question 6.
Unpaid Dividend
Answer:
Dividend declared by the company but neither paid to nor claimed by a shareholder within 30 days of its declaration is termed as Unpaid and Unclaimed Dividend.
Question 7.
Unpaid Dividend Account
Answer:
A dividend declared by the company but neither paid to nor claimed by a shareholder is called an Unpaid/Unclaimed Dividend. This unpaid/unclaimed dividend should be transferred to the Unpaid/Unclaimed Account within 30 days of its declaration. This ‘Unpaid Dividend Account’ is opened in a scheduled Bank by the company.
Question 8.
Dividend Mandate
Answer:
The dividend is paid by different modes of payment like cash, cheque, or warrant or by electronic mode. It can also be paid by using the Dividend Mandate. If the shareholder wishes to get dividend credited directly in the Bank Account he is required to send a request in a prescribed form which is called ‘Dividend Mandate’. The dividend Mandate authorizes the company to pay dividends directly to shareholders’ bankers.
Question 9.
IEPF
Answer:
IEPF means Investors Education and Protection Fund. Any amount in the Unpaid Dividend Account of a company that is unpaid/ unclaimed for a period of 7 (seven years) from the date of such a transfer shall be, transferred to ‘Investors Education and Protection Fund’. The claimant can claim his dividend by filling the prescribed form and submitting the necessary documents. The claimant needs to follow the procedure.
Question 10.
Rate of Dividend
Answer:
The return that a shareholder receives on his investment from the company is called a dividend. The dividend is always declared by the company on the face value of a share irrespective of its market value. The rate of dividend is expressed as a percentage of the face value of a share per annum.
3. Study the following case/situation and express your opinion.
1. LMN Co Limited decides to declare a dividend for the financial year 2018-19 in which it has earned profits less than their expectations.
Question (a).
Is Board right in recommending a dividend of Rs. 5/- per share out of free reserves?
Answer:
Yes, Board is right in recommending a dividend of Rs. 5/- per share out of free reserves, as dividends can be paid out of free reserves.
Question (b).
Can Board declare the dividend though it is not approved by AGM?
Answer:
No Board cannot declare the divided if it is not approved by AGM as dividends should be approved by shareholders by passing an ordinary resolution in AGM.
Question (c).
Can the Board give dividends in the form of gifts?
Answer:
No Board cannot give dividends in the form of gifts. It must be paid in cash, not in kind.
2. ABC Co. Ltd. decides to pay Interim Dividend.
Question (a).
Can it be paid out of free reserves?
Answer:
No. the Interim Dividend cannot be paid out of free reserves.
Question (b).
Is the Board right in declaring the same at the Board Meeting?
Answer:
Yes. Board is right in declaring the same at the Board meeting as it has the power to declare an Interim Dividend.
Question (c).
Can the company distribute the same within 30 days of its declaration?
Answer:
Yes, after the declaration, the Interim dividend should be paid within 30 days of its declaration.
3. RAJ Company limited decides to pay Interim Dividend.
Question (a).
Is the Board justified to decide Interim Dividend of Rs. 5/per share even though profits to date are insufficient?
Answer:
The interim dividend is paid out of profits between two annual general meetings. It cannot be paid out of any reserves. So it is not justified.
Question (b).
Can the Board declare it out of Free Reserves?
Answer:
No Board cannot declare an Interim dividend out of free reserves.
Question (c).
Can the Board declare it out of Capital?
Answer:
No Board cannot declare out of capital.
4. DIAMOND Co. Ltd. is considering declaring an Interim Dividend.
Question (a).
In how many days of the declaration it should transfer the funds to Dividend Account?
Answer:
The interim dividend must be transferred to the Dividend Account within 5 days of its declaration.
Question (b).
In how many days it must pay it to shareholders?
Answer:
The interim dividend should be paid within 30 days of its declaration to shareholders.
Question (c).
In how many days of the declaration it must transfer the funds to the Unpaid Dividend A/c?
Answer:
Unpaid/unclaimed Interim dividend should be transferred to ‘Unpaid Dividend Account’ within 7 days of the expiry of 30 days of declaration i.e. 37 days of its declaration.
5. The Board of Directors of STAR Co. Ltd. which is a listed company recommends a dividend of Rs. 15/- per share to be paid in cash.
Question (a).
Is it justified to pay the dividend firstly to its Preference Shareholders and then after to Equity Shareholders?
Answer:
Yes, because preference shares are entitled to the dividend before it is paid to the equity shareholder. Equity shareholders get dividends from residual profits i.e. after paying to preference shareholders.
Question (b).
Is the AGM required to approve the same?
Answer:
Yes for declaration of final divided Approval of AGM is a must.
Question (c).
Can the company pay dividends in cash?
Answer:
Yes, the company pay a dividend in cash and not in kind.
6. GOLD Co. Ltd. declares a dividend of Rs. 10/- per share for F.Y. 2018-19.
Question (a).
Is the company under default, if the dividend was not paid within 30 days of its declaration?
Answer:
Yes, the company is to default as the time limit within which the company must pay dividends after the declaration is 30 days.
Question (b).
Is the company right in transferring the unpaid dividend to its Debenture Reserve Account?
Answer:
No, the company has to transfer the total amount of dividend which remains unpaid/unclaimed to the ‘Unpaid Dividend Account.
Question (c).
Does the company have to transfer the amount of unpaid dividend to IEPF after 30 days?
Answer:
No, any amount in the unpaid dividend account of a company that remains unpaid/unclaimed for a period of 7 years from the date of such a transfer, should be transferred to (IEPF), ‘Investors Education and Protection Fund’.
4. Distinguish between the following:
Question 1.
Final Dividend and Interim Dividend
Answer:
| Points | Interim Dividend | Final Dividend |
| 1. Meaning | Interim Dividend is the dividend that is declared between two Annual General Meetings of a company. | The final Dividend is the dividend that is declared at the Annual General Meeting of a company. |
| 2. When declared? | It is declared between two Annual General Meetings. | It is declared after the completion of the financial year of the company. |
| 3. Who declares? | The interim dividend is declared by the Board of Directors by passing a resolution. | The final dividend is decided and recommended by the Board of Directors. It is declared by the shareholders. |
| 4. Authorization | Authorization of Articles is necessary for the declaration of interim dividends. | Authorization of Articles is not necessary for the declaration of the final dividend. |
| 5. Rate of Dividend | The rate of the Interim dividend is lower than the final dividend. | The rate of the final dividend is always higher than the Interim dividend. |
| 6. Source | It is declared out of profits of the current accounting year. | It is declared from different sources like the current year’s profits, free reserves, capital profits, money provided by Government for dividends, etc. |
| 7. Accounting Aspect | It is declared before the preparation of the final accounts of the company. | It is declared only after the accounts of the year are prepared and finalized. |
Dividend and Interest
Answer:
| Points | Dividend | Interest |
| 1. 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. For e.g. Debenture holder, Deposit holders. |
| 2. Intervals | Dividends need not be paid on regular basis and they can vary according to the company’s profits. | Interest has to be paid at regular intervals at a fixed rate. |
| 3. 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. |
| 4. Expense | Dividends are not the expense as they are based on the profit made. If no profit, they are not paid for that period. | Interest is the expense to the company. |
| 5. Rate of Dividend | The rate of the Interim dividend is lower than the final dividend. | The rate of the final dividend is always higher than the Interim dividend. |
| 6. Obligation | It has to be paid only when the company made profits. | It is not linked to the Profits of the company. It is an obligation for the company. |
| 7. When payable | It is payable when a company earns sufficient profit. | It is payable every year irrespective of the profits of the company. |
| 8. Rate | It is paid at a fluctuating rate to the equity shareholders. | The rate of Interest is Fixed and pre-determined at the time of issue of the security. |
Question 1.
State any four points to be kept in mind by a listed company with respect to dividends.
Answer:
When a company lists its shares on Stock Exchange, additional listing agreements are to be followed which are as follows:
Question 2.
Discuss any four features of dividend.
Answer:
Question 3.
Explain the features of interest.
Answer:
Interest is the cost of borrowing money typically expressed as an annual percentage of a loan. The money people earn on their savings is called Interest. Interest is paid to the lender by the borrower in case of a loan or from the financial institution to the depositor in the case of a savings account. In financial terms, it is a payment made for using the money of another i.e. borrower takes money from the lender. Interest is the cost of renting the money for the borrower and it is the income from lending money for the lender.
Features:
6. Justify the following statements.
Question 1.
The dividend is paid out of the profits of the company.
Answer:
Question 2.
Interim dividends cannot be paid out of free reserves.
Answer:
Question 3.
Annual General Meeting (AGM) is crucial for Final Dividend.
OR
The final Dividend is declared only after the accounts are prepared and finalized.
Answer:
Question 4.
Listed Company has to follow additional guidelines on dividend matters.
Answer:
Question 5.
Equity shareholders get the last priority in receiving dividends.
Answer:
Question 6.
Unpaid dividends cannot be used by the company.
Answer:
Question 7.
Interest is a liability/obligation of the company.
OR
Interest is paid to the creditor of the company.
Answer:
Question 8.
Approval of members is not needed for Interim Dividends.
Answer:
7. Answer the following questions.
Question 1.
Define Dividend and explain its features.
Answer:
The term dividend is derived from the Latin word ‘Dividendum’ which means that which is to be divided. A dividend is the portion of the company’s earnings distributed to the shareholders decided and managed by the company’s board of directors.
The dividend is a share of distributable profits of the company. A shareholder is entitled to receive the dividend when it is formally declared by the company.
Definitions:
Features of Dividend:
Question 2.
What is Interest? Explain its features.
Answer:
Interest is the cost of borrowing money typically expressed as an annual percentage of a loan. The money people earn on their savings is called Interest. Interest is paid to the lender by the borrower in case of a loan or from the financial institution to the depositor in the case of a savings account. In financial terms, it is a payment made for using the money of another i.e. borrower takes money from the lender. Interest is the cost of renting the money for the borrower and it is the income from lending money for the lender.
Features:
Question 3.
Discuss legal provisions for declaration of dividend.
Answer:
The term dividend is derived from the Latin word ‘Dividendum’ which means that which is to be divided.
A dividend means the profit of a company that is not retained in Legal Provisions for declaration of Dividend.
(i) Board Meeting:
(ii) Shareholders’ Approval:
(iii) Separate Bank Account:
The company must deposit the dividend amount in a separate bank account i.e. “Dividend Account” opened in a scheduled bank. The dividend must be transferred to this account within 5 days of its declaration.
(iv) Prohibition to pay Dividend:
Question 4.
Explain Interim Dividend.
Answer:
Features of Interim Dividend: