A Ltd proposes to declare dividend out of accumulated profits earned by it in the previous years and...........

Companies Act-Phase (I & II) Paymentofdividends

A Ltd. proposes to declare dividend out of accumulated profits earned by it in the previous years and transferred to the free reserves. The rate of dividend declared by it shall not exceed the average of the rates at which dividend was declared by it in the immediately preceding ___________ financial years, and the total amount to be drawn from reserves shall not exceed ___________ of the sum of its paid-up share capital and free reserves as per the latest audited financial statements.

3; 1/5th

5; 1/5th

3; 1/10th

5; 1/10th

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Explanation:

In the event of inadequacy or absence of profits in any year, a company may declare dividend out of free reserves subject to the fulfillment of the following conditions, namely:
(1) The rate of dividend declared shall not exceed the average of the rates at which dividend was declared by it in the three years immediately preceding that year:
Provided that this sub-rule shall not apply to a company, which has not declared any dividend in each of the three preceding financial year.
(2) The total amount to be drawn from such accumulated profits shall not exceed one-tenth of the sum of its paid-up share capital and free reserves as appearing in the latest audited financial statement.