Are preference shares debt or equity?

Open in App

Solution

Preference shares are a mixture of debt and equity, they behave as equity by carrying the element of risk as the principal is not secured while they pay a fixed rate of interest in the form of dividends.

Suggest Corrections

Similar questions

From the following, calculate (a) Debt Equity Ratio (b) Total Assets to Debt Ratio (c) Proprietary Ratio.

	Rs
Equity Share Capital	75,000
Preference Share Capital	25,000
General Reserve	45,000
Accumulated Profits	30,000
Debentures	75,000
Sundry Creditors	40,000
Outstanding Expenses	10,000

Q. N Ltd. had 9,000, 8% preference shares of Rs. 100 each, fully paid up. The company decided to redeem these preference shares at par by the issue of sufficient number of equity shares. How many equity shares are required to be issued if new equity shares are to be issued at Rs. 10 each?

Q. Consider the following statements:
(1) Preference shares can be redeemed either out of profit of the company or out of the proceeds of fresh issue.
(2) Preference shares are redeemed after equity shares.
(3) Preference shareholders have preference right as to dividend as well as return of capital.
(4) A company cannot issue preference shares redeemable after 20 years.
The correct statements are ________________.

Assuming that the Debt-Equity Ratio is 2 : I, state, giving reasons, which of the following transactions would (I) Increase; (ii) Decrease; (ii.) Not alter the Debt-Equity Ratio :

(i) Issue of new shares (Preference/Equity) for Cash.

(ii) Issue of new shares (Preference/Equity) against purchase of fixed asset.

(iii) Buy-back of its own shares by a Company.

(iv) Issue of Debentures for Cash.

(v) Issue of Debentures against purchase of fixed asset.

(vi) Repayment of Long-term Borrowings.

(vii) Conversion of Debentures into Equity Shares/Preference Shares.

(viii) Sale of a fixed asset at par.

(ix) Sale of a fixed asset at profit.

(x) Sale of a fixed asset at loss.

(xi) Purchase of a fixed asset on a credit of 2 months.

(xii) Purchase of a fixed asset on long-term deferred payment basis.

(xiii) Issue of Bonus Shares.

Do we separately disclose equity and preference shares issued?

Join BYJU'S Learning Program