What Is Divisible Profit?
Profit which is distributed among the shareholder or partner is called Divisible Profit. It is legally available for payment of dividends to shareholders.
According to sec-123 of Companies Act 2013 the trading profits are available for distribution among shareholders.
It means non-trading profit or capital profit should not be distributed among shareholders. It also defines the principles to be follow for distribution of divisible profit such principles are:
1.Accumulated profit or amount provided by central or state government should be utilised for payment of dividend.
2.No dividend should be declared on paid in any financial year before providing depreciation and reserve.
3.It should be provided out of free reserve which is deposited into a separate bank account within 5 days of declaration.
4.It also provides a specific rate that should be transferred to reserve before declaring dividend.
Rules Relating To Transfer to Reserve
According to schedule (II) of the companies act 2013 a certain percentage of profit should transfer on the basis of purpose of dividend such as:
- If the dividend rate is proposed between 10-25 % then the amount to be transferred to reserve shall not be less than 2.5% on current profit.
- If the dividend rate is between 15-20 % then the amount transferred to reserve shall not be less than 7.5% of current profit.
- If the dividend rate exceeds 20% then the amount transferred to the reserve shall not be less than 10% of current profit.