UNIT-5UNIT-5

DIVISIBLE DIVISIBLE PROFITS&DIVIDENDPROFITS&DIVIDENDSS

INVESTIGATIONINVESTIGATION AUDIT OF AUDIT OF

COMPUTERIZED COMPUTERIZED ACCOUNTINGACCOUNTING

An Investigation may be defined as a close examination of accounts and records and a search for the relevant data, with a view to ascertaining any fact for some special purpose...

INVESTIGATION

CLASSIFICATION OF INVESTGATION

• Evaluations.

• Reviews

• Surveys

• Analyses

• Special Audits

• Statutory Investigation

MODE OF INVESTIGATIONMODE OF INVESTIGATION

– General particulars of BusinessGeneral particulars of Business– No. of. Plants and their LocationNo. of. Plants and their Location– No. of. Sales centers and their location.No. of. Sales centers and their location.– List of share holders.List of share holders.– Names of directors and other executives.Names of directors and other executives.– Credit RepotsCredit Repots– Area of BusinessArea of Business– Manufacturing positionManufacturing position– Organization structureOrganization structure– Financial positionFinancial position– Tax liabilityTax liability– AssetsAssets– InvestmentsInvestments– LiabilitiesLiabilities

STATUTORY INVESTIGATIONSTATUTORY INVESTIGATION

An Statutory Investigation into the affairs An Statutory Investigation into the affairs of the company means an Investigation of of the company means an Investigation of all its business affairsall its business affairs

Secs.235-251 of the Companies act deals Secs.235-251 of the Companies act deals with the Investigation of the affairs of the with the Investigation of the affairs of the company to be made by the Central company to be made by the Central government;government;

WHEN IT IS MADEWHEN IT IS MADE

On Report by The Registrar(Sec.235(1))On Report by The Registrar(Sec.235(1)) On application by the members of the On application by the members of the

company[Secs.235(2)(a)(b) and 236]company[Secs.235(2)(a)(b) and 236] Investigation in other cases[Sec.237]Investigation in other cases[Sec.237] Where Investigation is Mandatory[Sec Where Investigation is Mandatory[Sec

237(a)]237(a)] Where investigation is Where investigation is

discretionary[Sec.237(b)]discretionary[Sec.237(b)]

INSPECTOR AND HIS INSPECTOR AND HIS POWERSPOWERS

Only an Individual can be appointed as inspector Only an Individual can be appointed as inspector to conduct an Investigation.-Ashoka Marketing to conduct an Investigation.-Ashoka Marketing Ltd.vs.Union of India.Ltd.vs.Union of India.

To investigate affairs of any other company in To investigate affairs of any other company in same group.same group.

To require officers of the company to produce To require officers of the company to produce books, etc., and to assist.books, etc., and to assist.

To require any body corporate to give information.To require any body corporate to give information. To keep books papers in custody.To keep books papers in custody. To examine officers on oath.To examine officers on oath. To seize books and papers To seize books and papers

INSPECTOR REPORT AND INSPECTOR REPORT AND IMPORTANCE OF REPORTIMPORTANCE OF REPORT

• The Inspector may and, if so directed by the central government must, make interim report to the government.

• Manner of disposal of report by the central government [Sec.241(2)]

• Prosecution[Sec.242]• Application to the court for winding up of

company[Sec.243]• Expenses of Investigation[Sec.245]• Investigation of ownership of company[sec.247]

DIVISIBLE PROFITSDIVISIBLE PROFITS

All the profits of the company are not divisible All the profits of the company are not divisible profits. Only those profits which can be legally made profits. Only those profits which can be legally made available to share holders by the way of dividend.available to share holders by the way of dividend.

It is to be noted that divisible profits do not include It is to be noted that divisible profits do not include “profit on revaluation” of fixed assets and other “profit on revaluation” of fixed assets and other profits of “capital nature”profits of “capital nature”

Sec 205 of the companies act 1956 lays down the Sec 205 of the companies act 1956 lays down the rules for computing divisible profits.rules for computing divisible profits.

DETERMINANTS OF DIVISIBLE DETERMINANTS OF DIVISIBLE PROFITSPROFITS

Memorandum & Articles of AssociationMemorandum & Articles of Association The Companies act,1956.The Companies act,1956. Legal Decisions.Legal Decisions. Principles of accountancy.Principles of accountancy. Regulations for management of Regulations for management of

companies limited by shares contained in companies limited by shares contained in the Table “A” of schedule1 make some the Table “A” of schedule1 make some provisions in the various clauses i.e. provisions in the various clauses i.e. Clause 85-92 of Table “A” Clause 85-92 of Table “A”

DIVIDEND

It refers to that amount of divisible profits which is distributed among the share holders of the company. A member (share holder) is entitled to receive dividend when it is declared by the board of directors as per the provisions of the Article.

TYPES OF DIVIDENDS Preference Dividend Unclaimed Dividend Proposed Dividend Final Dividend Interim Dividend Corporate Dividend Tax

LEGAL PROVISIONS RELATING LEGAL PROVISIONS RELATING TO DIVIDENDSTO DIVIDENDS

Sources of dividends.[Sec.205]Sources of dividends.[Sec.205] Dividends not to be paid out of capitalDividends not to be paid out of capital Payment of dividend in proportion of Payment of dividend in proportion of

amount paid up on sharesamount paid up on shares Dividends in cash only.Dividends in cash only. Transfer to dividend bank and unclaimed Transfer to dividend bank and unclaimed

dividend accountdividend account

FACTORS DETERMINIG THE PAYMENT OF DIVIDEND

• Nature of earnings• Liquidity.• Future plans• Capital Structure• Share value • Tax Implications