Corporate and Other LawsMCQQuestion 12549 of 300
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Under Rule 3 of the Companies (Declaration and Payment of Dividend) Rules, 2014, when a company declares dividend out of accumulated reserves due to inadequacy of profits, what is the maximum permissible total withdrawal from accumulated profits?

Select Your Answer (Keyboard: A, B, C, D)
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Correct Answer

✅ Option A — 10% of the sum of paid-up share capital and free reserves as per latest audited balance sheet

All Options:

  • A10% of the sum of paid-up share capital and free reserves as per latest audited balance sheet ✓
  • B15% of the sum of paid-up share capital and free reserves as per latest audited balance sheet
  • C20% of the sum of paid-up share capital and free reserves as per latest audited balance sheet
  • D5% of the total turnover of the preceding financial year

Detailed Solution & Explanation

Correct Answer: Option **A** (10% of the sum of paid-up share capital and free reserves as per latest audited balance sheet) **Statutory Provision (Section 123 - Declaration of Dividend out of Reserves):** Rule 3(2) mandates that the total amount to be drawn from such accumulated profits shall not exceed one-tenth (10%) of the sum of its paid-up share capital and free reserves as appearing in the latest audited financial statement. Therefore, Option A is the correct legal position under the ICAI curriculum.

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