Question

Please provide explanations and the exact amount for arrears, excess and current dividend.

m e De K ding U SA Cone S. s. Com BcDE F G H I J 1 Copy and answer in 1 whole yellow pad ABC Corporation declared and paid cash dividends for the last 3 years as follows: 2017- 130,000, 2018 - 210,000, 2019 - 310,000. No dividends were paid for two years prior to 5 2017. The capital structure of the Company for the last three years follows: 7 10% Preference Share capital, P100 par, 5,000 shares outstanding P500,000 8 Ordinary Share capital, P50 par, 5,000 shares outstanding P250,000 10 At the beginning of 2017, dividends are in arrears for 2 years. 12 Required: Compute for the total dividends for three years for Ordinary and Preference 13 under different assumptions: 14 1. Preference shares are non-cumulative and non-participating 15 2. Preference shares are cumulative but non-participating, 16 3. The Preference shares are non-cumulative but fully participating. 17 4. The Preference shares are cumulative and fully participating. 18 5. Preference shares are non-cumulative but participating up to an additional 8%

Answer 1

Answer :

Summary of information given

Year	Total Dividend Paid
2017	130000
2018	210000
2019	310000

(1) Preference shares are non-cumulative and non-participating

Holders of non cumulative preference shares don’t have any right to receive past dividends. So here dividends in arrears will not be paid to these holders.

Dividend to Preference Share Holders - For year 2017, 2018 and 2019 they will be paid @ 10%. i.e. 500000*10% = 50000 for each year

Dividend to Equity Share Holders = Total amount available for dividend LESS dividend paid to preference share holders

Year 2017: 130000 – 50000 = 80000

Year 2018: 210000 – 50000 = 160000

Year 2019: 310000 – 50000 = 260000

Computation of dividend

Year	Preference Shares	Ordinary Shares	Total
2017	50000	80000	130000
2018	50000	160000	210000
2019	50000	260000	310000

(2) Preference share are cumulative but non-participating

Holders of cumulative preference shares have right to receive dividends in arrears if any. Here arrears are pending for two years, so they will receive 100000 (500000*10%*2) as an arrears in addition to regular dividend.

Year 2017: Preference share holders will receive 100000(arrears) and 50000 (regular dividend) totaling to 150000, but total amount available in only 130000. So they will receive 130000 and remaining 20000 will be arrears and same will be paid in next year. For equity shareholders, no dividend will be paid as there is no excess fund available for dividends.

Year 2018: Preference share holders will receive 20000 (arrears) and 50000 (regular dividend) totaling to 70000. Equity share holders are entitled to receive remaining 140000 (total amount available 210000 LESS paid to preference shareholders 70000)

Year 2019: Preference share holders will receive regular dividend 50000 and equity share holders will receive remaining 260000 (total amount available 310000 Less paid to preference shareholders 50000)

Computation of dividend:

Year	Preference Share Dividend	Ordinary Shares Dividend	Total Dividend
2017	130000	0	130000
2018	70000	140000	210000
2019	50000	260000	310000

(3) The preference share are non-cumulative but fully participating.

Here preference share are non-cumulative means they will not receive any arrears but they are fully participating means they will receive some additional dividend. Whenever ordinary share holders receives dividend in excess of preference shareholders then participating preference share holders are also entitled to receive excess dividend.

Here per share dividend distributed to ordinary share holders doesn’t exceed per share dividend distributed to ordinary share holders. So preference share holders will not receive any extra dividend.

Computation of dividend:

Year	Preference Share Dividend	Per share	Ordinary Shares Dividend	Per share	Total Dividend
2017	50000	100	80000	16	130000
2018	50000	100	160000	32	210000
2019	50000	100	260000	52	310000

per share = dividend / outstanding shares

(4) The preference shares are cumulative and fully participating

Here they are cumulative means they are entitled to receive arrears. And they are also fully participating means they are entitled to receive excess dividend paid to ordinary shareholders, if any.

Here per share dividend distributed to ordinary share holders doesn’t exceed per share dividend distributed to ordinary share holders. So preference share holders will not receive any extra dividend.

Year	Preference Share Dividend	Per Share	Ordinary Shares Dividend	Per Share	Total Dividend
2017	130000	100	0	0	130000
2018	70000	100	140000	28	210000
2019	50000	100	260000	52	310000

per share = dividend / outstanding shares. Per share in case of preference shares is 100.

(5) Preference shares are non-cumulative but participating up to an additional 8%.

Here preference share are non-cumulative means they will not receive any arrears and they are participating up-to 8% means they are entitled to receive additional dividend of 8% and it is triggered whenever the dividend to ordinary shares exceeds that of preference shares.

Here per share dividend distributed to ordinary share holders doesn’t exceed per share dividend distributed to ordinary share holders. So preference share holders will not receive any extra dividend.

Computation of dividend:

Year	Preference Share Dividend	Per share	Ordinary Shares Dividend	Per share	Total Dividend
2017	50000	100	80000	16	130000
2018	50000	100	160000	32	210000
2019	50000	100	260000	52	310000

per share = dividend / outstanding shares

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