Dividend paid to shareholders is.................
AAn expense
BAn appropriation of Profit
CA liability
DAn asset
Answer:
B. An appropriation of Profit
Read Explanation:
Accounting Treatment of Dividends
- Nature of Payment: Dividends distributed to shareholders are classified as an appropriation of profit, not a charge against profit.
- Financial Reporting: Since it is an appropriation, dividends are dealt with in the Profit and Loss Appropriation Account or the Statement of Changes in Equity, rather than the Profit and Loss Account.
- Distinction: A charge against profit (like interest on loans or rent) must be paid even if the company incurs a loss, whereas an appropriation is only paid out of divisible profits available after tax.
- Cooperative Societies Act: Under the Kerala Co-operative Societies Act, dividends can only be declared after fulfilling mandatory statutory allocations, such as transfers to the Reserve Fund.
- Legal Provision: Section 56 of the Kerala Co-operative Societies Act, 1969, mandates that a society cannot pay a dividend exceeding the rate prescribed by the government, often capped at 15% per annum on the paid-up share capital.
- Key Criteria: The payment is subject to the approval of the members in the Annual General Meeting (AGM) based on the audited financial statements.