# Sources for Declaration of Dividend [Section 123(1) and 123(3)]
## Source for Interim Dividend
A Board may declare interim dividend out of:
1. Surplus in P&L account (accumulated profits),
2. Profit of the FY for which dividend is declared, OR
3. Profit till the quarter preceding declaration of dividend.
## Source for Final Dividend
A company may declare final dividend out of:
1. Current FY profits after providing for depreciation as per Schedule II,
2. Previous FY profits after depreciation as per Schedule II (i.e., credit balance in P&L + free reserves),
3. Both the above, OR
4. Money provided by CG/SG for payment of dividend, where such government has given a guarantee.
## What are "Free Reserves"?
Free reserves = reserves available for distribution as dividend (as per the last audited balance sheet).
### NOT treated as free reserves:
- Unrealised gain
- Notional gain
- Revaluation reserve
- Capital reserve
- Any change in the carrying amount of an asset/liability recognised in equity
## Mandatory Set-off Before Declaration
Before declaring dividend, the company must set off:
- Previous year losses, AND
- Depreciation not provided in previous years,
against current year profits.
## Key Memory Hook
"Real profits or guaranteed government money — those are the only fuel for dividend. Unrealised/notional gains and revaluation reserves are off-limits."