Question

Dividend is —

• A. Net profit
• B. Appropriation of profit
• C. Reserve fund
• D. Part of undistributed profit

Hint:

Dividends are paid from net profits after reserves and taxes — they are a distribution, not an expense.

Answer 1

The Correct Option is B

Step 1: Understanding Dividend.
A dividend refers to the portion of profit that a company distributes among its shareholders.
It represents the return on the shareholders’ investment in the company’s equity.
Step 2: Dividend as appropriation of profit.
Dividends are declared out of profits earned by the company after meeting all expenses, taxes, and legal obligations.
This distribution is an appropriation — meaning allocation — of profit, not an expense of the company.
Therefore, dividends reduce the amount of retained earnings but do not affect the company’s operating profit.
Step 3: Analysis of options.
- (1) Net profit: Incorrect — it represents total profit before appropriation.
- (2) Appropriation of profit: Correct — dividends are distributed from profit after appropriation.
- (3) Reserve fund: Incorrect — funds retained, not distributed.
- (4) Part of undistributed profit: Incorrect — that remains in the company.
Step 4: Conclusion.
Hence, a dividend is an appropriation of profit.