A company has 10% preference shares of $200 000 and ordinary share capital of $500 000. The profit available for dividends is $45 000. How much is available...
Question 1 Report
A company has 10% preference shares of $200 000 and ordinary share capital of $500 000. The profit available for dividends is $45 000. How much is available for ordinary dividends?
Answer Details
The correct answer is $25 000.
Preference dividends must be paid before ordinary dividends. The preference shares carry a 10% fixed dividend.
Preference dividend: 10% x $200 000 = $20 000.
Amount available for ordinary dividends: $45 000 - $20 000 = $25 000.
Preference shareholders have priority, so their fixed dividend is paid first from the available profits. The remaining $25 000 can be distributed to ordinary shareholders at the directors' discretion.
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