Question : Assertion-Reason Questions: Chapter - Sources of Business Finance
Questions : Equity Shares and Preference Shares
Assertion: Non-cumulative preference shares do not carry a fixed dividend liability.
Reason: Dividends on non-cumulative preference shares accumulate over years.
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: Both assertion and reason are false.
Solution : The correct answer is (d) Both assertion and reason are false.
The assertion is false. Non-cumulative preference shares do carry a fixed dividend liability. These shares have a predetermined fixed dividend rate that the company must pay to shareholders, typically on a regular basis (e.g., quarterly, annually), as specified in the terms of the shares.
The reason is false. Dividends on non-cumulative preference shares do not accumulate over years. Non-cumulative preference shares do not have an accumulation feature. If the company does not declare dividends in a particular year for non-cumulative preference shares, the unpaid dividends for that year are simply forfeited; they do not accumulate for future years.
Assertion: Non-cumulative preference shares provide assurance of regular dividend payments.
Reason: Non-cumulative preference shares do not carry fixed dividend obligations.
Regular exam updates, QnA, Predictors, College Applications & E-books now on your Mobile