Dividend and Interest
Q.4 (2) Dividend and Interest
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Answer:
| Points | Dividend | Interest |
|---|---|---|
| Meaning | Portion of divisible profit distributed to shareholders. | Return paid to creditors (debentureholders, depositors, lenders) on borrowed funds. |
| Paid to | Shareholders, the owners. | Creditors of the company. |
| Nature | Appropriation of profit. | Charge against profit. |
| Profit | Paid only when there are profits and it is declared. | Payable even if there is loss. |
| Rate | Varies with profits (fixed only for preference shares). | Fixed rate, agreed in advance. |
| Obligation | No legal obligation to declare; becomes a debt only after declaration. | Legal obligation; non-payment allows creditors to take legal action. |
| Tax | Not a deductible expense for the company. | Deductible expense for computing taxable income. |
| Approval | Final dividend recommended by Board and declared at AGM. | No approval of shareholders needed. |
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· 28 Oct 2026
AI-verified · Oct 2026
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