Question

The authorised capital of M Ltd. consists of both cumulative preference shares and equity shares. Each $5$% cumulative preference share has a par value $Rs.100$. Each equity share has a par value $Rs.10$. During the year $2005-06$, the cumulative preference share capital was $Rs.2,00,000$
If dividend declarations totalled $Rs.25,000$ in the year $2005-06$, the dividends allocated to the equity shareholders in the year $2005-06$ will be ___________.

• A. $Rs.21,000$
• B. $Rs.15,000$
• C. $Rs.10,000$
• D. $Rs.16,000$

Answer 1

The correct option is B $Rs.15,000$

Dividend is a sum of money paid regularly (typically annually) by a company to its shareholders out of its profits (or reserves).

As the name syas, preference shareholders have prefernce over equity shareholders in payment of dividend.

Calaculation of dividend payablr on 5% cumulative prefence share capital is

Annual dividend = Par value of share * Rate of dividend

Annual dividend = Rs. 200000 * 5%

Annual dividend = Rs. 10000

Dividend for equity shareholder = total dividend - preference dividend

Dividend for equity shareholder = Rs.25000 - Rs. 10000

Dividend for equity shareholder = Rs. 15000