Which of the following statement is true regarding various source of finance?

(A) Dividend on preference shares is  tax deductible and therefore preferred by organisations seeking tax advantage.

(B) An Indian Depository Receipt is a financial instrument denominated in Indian Rupees in the form of a Depository Receipt.

(C) There is a least risk in equity as the share capital has to be repaid only at the time of winding up and dividends need not be paid if no profits are available.

(D) A partnership firm can raise money by issue of equity shares upto ₹5 crore only.

Choose the correct answer from the options given below.

(B), & (C) Only

The correct answer is option 2- (B), & (C) Only.

(A) Dividend on preference shares is  tax deductible and therefore preferred by organisations seeking tax advantage. THIS IS FALSE as dividend on preference shares is not tax deductible. Various sources may also be weighed in terms of their tax benefits. The dividend on preference shares is not tax deductible, interest paid on debentures and loan is tax deductible and may, therefore, be preferred by organisations seeking tax advantage.

(B) An Indian Depository Receipt is a financial instrument denominated in Indian Rupees in the form of a Depository Receipt. THIS IS TRUE. An IDR is a financial instrument denominated in Indian Rupees in the form of a Depository Receipt. It is created by an Indian Depository to enable a foreign company to raise funds from the Indian securities market. The IDR is a specific Indian version of the similar global depository receipts.

(C) There is a least risk in equity as the share capital has to be repaid only at the time of winding up and dividends need not be paid if no profits are available. THIS IS TRUE. Business should evaluate each of the source of finance in terms of the risk involved. For example, there is a least risk in equity as the share capital has to be repaid only at the time of winding up and dividends need not be paid if no profits are available. A loan on the other hand, has a repayment schedule for both the principal and the interest. The interest is required to be paid irrespective of the firm earning a profit or incurring a loss.

(D) A partnership firm can raise money by issue of equity shares upto ₹5 crore only. THIS IS FALSE. : The form of business organisation and status influences the choice of a source for raising money. A partnership firm cannot raise money by issue of equity shares as these can be issued only by a joint stock company.