A company has 5,000; 8% Cumulative Preference shares of ₹100 each. The company did not pay the dividend to the Preference shareholders for the years 2020 and 2021. Profit for the year 2022, the company's profit is ₹3,00,000. What will be the profit available for Equity Shareholders?
Answer & explanation
Correct answer: option 2
The correct answer is option 2- ₹1,80,000.
Dividend on Cumulative Preference shares for a year = 5,00,000 x 8/100
= 40,000
Cumulative Dividend for 3 years = 40,000 x 3
= 1,20,000
Profit left for Equity Shareholders = Total profit - Dividend on preference shares
= 3,00,000 - 1,20,000
= 1,80,000
Cumulative Preference Shareholders have the right to get the cumulative profit in the year, when the company has adequate profit, before Equity Shareholders. So, ₹1,80,000 is left for equity shareholders.