Question

Provide explanations and indicate if the amount is dividend in arrears, current and excess.

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

As per the given information ABC corporation has paid the dividends for 3 years as follows:
	Amount $
2017	130000
2018	210000
2019	310000
Computation of dividends attributable to preference shareholders and common shareholders
in the following situations;
1	Preference shares are non cumulative and non participating
	In this case the preference shareholders get the fixed dividends of 10% on share value
	Balance amount to common shareholders
	Particulars	2017	2018	2019
	Preference shareholders	50000	50000	50000
	Common shareholders	80000	160000	260000
		130000	210000	310000
2	Preference shares are cumulative and non participating
	In this scenario the preference shareholders shall get the previous years dividends also
	if any arrears pending before paid to common shareholders.
	So, 2 years prior to 2017 the dividends are not paid to its shareholders.
	Preference shareholders	130000	70000	50000
	Common shareholders	0	140000	260000
		130000	210000	310000
3	Preference shares are non cumulative and fully participating
	In this scenario the preference shareholders shall get the fixed dividends on their investment
	and common shareholders also will get the fixed dividend first and balance distributed among
	preference shareholders and common shareholders in pro rata basis
	Preference shareholders	86666.67	140000	206667.7
	Common shareholders	43333.33	70000	103333.3
		Dividend rate	Per share value	Dividend per share	No. of shares	Dividend
2017	Dividends to Preference shareholders	10%	100	10	5000	50000
	Dividends for common stockholders	10%	50	5	5000	25000
	Balance amount to be distributed on pro rata basis					55000
	Dividends to Preference shareholders- Par value is $ 100	55000/150*100				36666.67
	Dividends for common stockholders- $ 50	55000/150*50				18333.33
2018	Dividends to Preference shareholders	10%	100	10	5000	50000
	Dividends for common stockholders	10%	50	5	5000	25000
	Balance amount to be distributed on pro rata basis					135000
	Dividends to Preference shareholders- Par value is $ 100
	Dividends for common stockholders- $ 50	135000/150*100				90000
		135000/150*50				45000
2018	Dividends to Preference shareholders	10%	100	10	5000	50000
	Dividends for common stockholders	10%	50	5	5000	25000
	Balance amount to be distributed on pro rata basis					235000
	Dividends to Preference shareholders- Par value is $ 100
	Dividends for common stockholders- $ 50	235000/150*100				156666.7
		235000/150*50				78333.33
4	Preference shares are cumulative and fully participating
		2017	2018	2019
	Preference shareholders	130000	146666.7	206667.7
	Common shareholders	0	63333.33	103333.3
		Dividend rate	Per share value	Dividend per share	No. of shares	Dividend
2018	Dividends to Preference shareholders	10%	100	10	5000	50000
	Previous years arrears					20000
	Dividends for common stockholders	10%	50	5	5000	25000
	Balance amount to be distributed on pro rata basis					115000
	Dividends to Preference shareholders- Par value is $ 100	115000/150*100				76666.67
	Dividends for common stockholders- $ 50	115000/150*50				38333.33
5	Preference shares are non cumulative but participating upto additional 8%
	In this scenario the preference shareholders shall get the fixed dividends on their investment
	and common shareholders also will get the fixed dividend first and balance distributed among
	preference shareholders and common shareholders in pro rata basis
		2017	2018	2019
	Preference shareholders	86666.67	90000	90000
	Common shareholders	43333.33	120000	220000
	Since the preference shareholders can get additional 8% which comes to $ 40000 maximum amount of dividend in addition to
	normal 10% dividend so in 2017 only will get less than $40000 and in other years the dividend to preference shareholders on pro
	rata basis is more so, $ 40000 only taken