Question : Assertion-Reason Questions: Chapter - Sources of Business Finance
Questions : Different Sources of Finance
Assertion: Equity shares do not carry any fixed obligation to pay dividends to shareholders.
Reason: Equity shareholders have a preferential right to receive dividends.
Option 1: Both assertion and reason are true, and the reason is the correct explanation of the assertion.
Option 2: Both assertion and reason are true, but the reason is not the correct explanation of the assertion.
Option 3: Assertion is true, but the reason is false.
Option 4: Both assertion and reason are false.
Correct Answer: Assertion is true, but the reason is false.
Solution : The correct answer is (c) Assertion is true, but the reason is false.
The assertion is true. Unlike debt obligations (e.g., bonds), equity shares do not have a fixed obligation to pay dividends. Dividends for equity shareholders are typically decided by the company's board of directors and are subject to the company's profitability and financial position.
The reason is false. Equity shareholders do not have a preferential right to receive dividends. Preferred shareholders, not equity shareholders, have preferential rights to receive dividends before common equity shareholders. Common equity shareholders are entitled to dividends after all liabilities and preferred dividends, if any, have been paid.
