Due to inadequacy of profit during the year ended 31st March, 2020, Z Ltd proposes to declare 10% dividend out of general reserve. From the following particulars, ascertain the amount that can be utilised from general re

Calculation of amount that can be drawn from the general reserve for 10% dividend Particulars Amount (₹) 10% dividend on ₹40,00,000 4,00,000 Profits available Current year's profit 1,50,000 Less: Preference Dividend (78,750) (71,250) Amount which can be utilized from reserves 3,28,750 Conditions as per Companies (declaration of dividend out of reserves) Rules: Condition I: Since 10% is lower than the average rate of dividend (12%), 10% dividend can be declared. Condition II: Maximum amount that can be drawn from the accumulated profits and reserves should not exceed 10% of paid up capital + free reserves i.e., ₹6,12,500 [10% of (₹40,00,000 + ₹8,75,000 + ₹12,50,000)]. Condition III: The balance of reserves after withdrawals of ₹9,21,250 (₹12,50,000 - ₹3,28,750) should not fall below 15% of its paid-up capital i.e., ₹7,31,250 (15% of ₹48,75,000). Since all the three conditions are fulfilled, the company can withdraw ₹3,28,750 from accumulated reserves as per Rule.