Question

Assertion (A): Preference shareholders are given a fixed rate of dividend even if the company earns no profit.

Reason (R): The preference shares have a preferential right of dividend to be paid as a fixed amount or an amount calculated at a fixed rate, which may either be free of or subject to income tax.

Options

• Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A).

• Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A).

• Assertion (A) is true, but Reason (R) is false.

• Assertion (A) is false, but Reason (R) is true.

Answer 1

Assertion (A) is false, but Reason (R) is true.

Explanation:

If the company does not make a profit, preference shareholders do not receive a dividend because a dividend cannot be declared if the company does not make a profit, even if they have preferential rights.