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Fundamentals of Auditing by S. K. Basu

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Chapter 8

Divisible Profits and Dividends

8.1 MEANING OF DIVISIBLE PROFIT

The portion of profit, which can legally be distributed to the shareholders of the company by way of dividend, is called the ‘divisible profit’.

The term ‘divisible profit’ is not defined in the Companies Act and the Act does not specify what is meant by ‘profit’. Only Section 205 of the Act lays down that no dividend can be declared or paid by a company except out of current profits or past undistributed profits or both, arrived at after providing for depreciation or money provided by the government for payment of dividend in pursuance of a guarantee given by the government.

8.2 MEANING OF DIVIDEND

The dictionary meaning of ‘dividend’ is “sum payable as interest on loan ...

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