What Are The Divisible Profits?

The profits available for the distribution among the shareholders of a company as dividend are called divisible profits. The profits are calculated by comparing the income and expense of one year. The necessary adjustments are made before calculating the profit of a business concern. The accounting principles are followed. The directors have the right to create provisions, reserves and funds out of business profits under the articles of association and the Companies Ordinance 1984.

The remaining profit may not be used in full for dividend. A part of such profit can be used to pay dividend to the shareholders. Keeping in view business conditions, the directors can propose the rate of dividend. The shareholders can approve such rate of dividend in annual general meeting. The rate of dividend proposed by the directors can not be increased by the shareholders at all. The proposed dividend is paid with in 45 days after the declaration of it.

Dividend must be paid out of the revenue profits. The correct calculation is essential for all who depends upon business. The overstatements can disturb one section of investors while understatement can upset another group. It is clear that divisible profits are profits available for shareholders in the shape of dividend.

The articles of association are the rules of the company for managing the business activities. The articles prescribe the rules for divisible profits. The directors are entitled to distribute the profit under the rules. They cannot exceed the prescribe limit. The Companies Ordinance 1984 states the rules and regulations for distribution of profits to the shareholders. The dividend can be paid out of revenue profit. The directors must follow the rules of companies for distributing profits. They cannot violate the law.

The accountancy Principles must be followed for calculating the divisible profits. The going concern, consistency. Conservatorium, matching concepts are applied. These principles must be applied otherwise the reliable results can not be expected from the accounting books and records. The legal decisions must be kept in mind while calculating the divisible profits. The court cases relating to auditing must be followed if applicable to conditions of the business.

The auditor must know the decisions announced by the court for time to time.
The principle of capital maintained must be applied. The capital cannot be used to paid dividends. The revenue profits can be utilized for payments of dividend the capital account must remain intact. It is illegal if the directors pay dividend out of capital during any year.