Practicing Success

Target Exam

CUET

Subject

Accountancy

Chapter

Accounting for Shares

Question:

Match the following.

LIST 1 LIST 2
(A) Cumulative Preference Share (I) Right to participate in remaining Profit
(B) Participating Preference Share (II) Can be converted into Equity Share
(C) Convertible Preference Share (III) Will be repaid after certain period
(D) Redeemable Preference Share (IV) Right to claim arrear of dividend


Choose the correct answer from the options given below:

Options:

(A)-(IV), (B)-(I), (C)-(II), (D)-(III)

(A)-(I), (B)-(II), (C)-(IV), (D)-(III)

(A)-(II), (B)-(I), (C)-(III), (D)-(IV)

(A)-(III), (B)-(I), (C)-(II), (D)-(IV)

Correct Answer:

(A)-(IV), (B)-(I), (C)-(II), (D)-(III)

Explanation:

* Cumulative preference shares are a type of preferred stock that comes with a special feature related to dividend payments. The "cumulative" aspect means that if the company is unable to pay the promised dividends in a particular period, the unpaid dividends accumulate and must be paid out in the future before any dividends are distributed to common shareholders.

* Participating preference shares are a type of preferred stock that gives shareholders the right to receive preferential payments, in addition to the fixed preferential payment, shareholders also have the opportunity to "participate" in the remaining profits with common shareholders.

* Convertible preference shares are a type of preferred stock that grants shareholders the option to convert their preferred shares into a predetermined number of common shares. This feature provides investors with the opportunity to benefit from potential increases in the value of the company's common stock.

* Redeemable preference shares are a type of preferred stock that gives the issuing company the right to repurchase or "redeem" the shares after a specified period or under certain conditions. This feature provides flexibility for the company to manage its capital structure.