Question : Assertion-Reason Questions: Chapter - Sources of Business Finance
Questions : Equity Shares and Preference Shares
Assertion: Non-cumulative preference shares provide assurance of regular dividend payments.
Reason: Non-cumulative preference shares do not carry fixed dividend obligations.
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. Non-cumulative preference shares typically carry an obligation for the company to pay regular dividends to shareholders when profits are available. However, if the company does not make a dividend payment in a particular period, there is no accumulation or obligation to pay those missed dividends in future periods.
The reason is false. Non-cumulative preference shares do have an obligation to pay fixed dividends if declared by the company. The "non-cumulative" aspect means that if the company does not declare a dividend in a particular period, there's no accumulation or carryover of the unpaid dividend to future periods. However, when the company declares a dividend, it is a fixed obligation to pay that dividend to the non-cumulative preference shareholders.
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