Question : Assertion-Reason Questions: Chapter - Sources of Business Finance
Questions : Equity Shares and Preference Shares
Assertion: Equity shares do not carry any fixed dividend liability.
Reason: Equity shareholders receive dividends before preference shareholders.
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.
This assertion is true. Equity shareholders are the owners of a company. They are not guaranteed to receive dividends, and the amount of dividends they receive is not fixed. The board of directors of the company decides whether or not to pay dividends, and how much to pay, based on the company's financial performance and other factors.
This reason is false. Preference shareholders are paid dividends before equity shareholders. Preference shareholders also have priority over equity shareholders in the event of liquidation of the company.
Therefore, the assertion is true, but the reason is false.
Assertion: Equity shares provide higher potential returns compared to preference shares.
Reason: Equity shareholders are given preference in dividend payments.
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