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Per Rule 7 of the Companies (Declaration & Payment of Dividend) Rules 2014, in the event of inadequacy or absence of profits, a Company may declare dividend from accumulated profits subject to the condition that the total amount drawn shall not exceed:
A1/10th of the total assets
B1/5th of the sum of its paid-up share capital
C1/5th of the sum of its paid-up share capital and free reserves
D1/10th of the sum of its paid-up share capital and free reserves
Answer & Solution
Correct answer: D. 1/10th of the sum of its paid-up share capital and free reserves
1. Step 1: Rule 7 of the Dividend Rules caps the drawdown of accumulated profits in years of inadequate profit.
2. Step 2: The cap is "1/10th of the sum of its paid-up share capital and free reserves" per the latest audited financials.
3. Step 3: Hence (C) is correct.
_Source: ICAI BoS CA Inter Paper 1 Practice MCQ Paper (89270bos-aps3012-int-p1), Q.15_
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