Board of Directors of AVB Limited wants to declare dividend ₹15 lakh out of capital profits for the year ended 31st March, 2017, without making a provisions for depreciation. Referring to the provisions of the Companies

In accordance with the provisions of the Companies Act, 2013, as contained in third proviso to section 123(1), no dividend shall be declared or paid by a company from its reserves other than free reserves. As per section 2(43) of the Companies Act, 2013, 'free reserves' means such reserves which, as per the latest audited balance sheet of a company, are available for distribution as dividend. Further according to section 123(2), for the purposes of declaration of dividend by a company as per section 123(1)(a), depreciation shall be provided in accordance with the provisions of Schedule II. Therefore, in the given case, AVB Limited can neither declare dividend from capital profit and nor it can declare dividend without making provision for depreciation.