1.

Due to inefficient management and negligence of the Board of Directors, ABC Ltd. is sustaining huge losses but Board of Directors has paid dividends out of the share capital to hide these inefficiencies and to uphold the goodwill. But the Board of Directors has decided to pay very less dividend out of profits earned without giving any satisfactory' reason for this decision. (i) What will be the immediate or short-run effects of ABC Ltd.'s decision? (ii) Explain how or whether it will be beneficial for the company legally or otherwise?

Answer»

Due to inefficient management and negligence of the Board of Directors, ABC Ltd. is sustaining huge losses but Board of Directors has paid dividends out of the share capital to hide these inefficiencies and to uphold the goodwill. But the Board of Directors has decided to pay very less dividend out of profits earned without giving any satisfactory' reason for this decision.

(i) What will be the immediate or short-run effects of ABC Ltd.'s decision?

(ii) Explain how or whether it will be beneficial for the company legally or otherwise?



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