Dividends, Accounts and Audit
Dividends, Accounts and Audit
This domain tests distribution of profits, maintenance of accounts, and appointment and rotation of auditors.
Core rules
- Dividend may be declared from profits of the current or previous financial years, after providing depreciation, and from free reserves. It cannot be paid out of capital or revaluation reserve.
- Board recommends final dividend; members declare it at the AGM but cannot exceed the recommendation. Interim dividend is declared by the board.
- Dividend must be paid within 30 days of declaration; unpaid amounts go to an unpaid dividend account within 7 days after that, and unclaimed amounts to IEPF after 7 years.
- Accounts must give a true and fair view, be kept on accrual and double-entry basis. Auditors are appointed by members for 5 years; listed and prescribed companies must rotate auditors (individual 5 years, firm 10 years).
Worked example
A company declares a final dividend of ₹10 lakh at its AGM. It pays ₹9 lakh within 30 days. The remaining ₹1 lakh must be transferred to the unpaid dividend account within 7 days after the 30-day period. If it remains unclaimed for 7 years, it goes to IEPF.
Traps
Dividend cannot be declared from revaluation reserve. Members cannot increase the board’s recommended dividend. Auditor rotation cooling-off is 5 years. Failure to pay dividend within 30 days attracts Section 127 consequences.