If preference shares are cumulative and no dividends are declared, the company subtracts the current year preference dividend in computing earnings per share.

Question

Quizplus · Accepted Answer

Cumulative preference shares require that unpaid dividends accumulate and must be paid out before any dividends can be paid to common shareholders. Therefore, when calculating earnings per share, the company must account for these dividends, even if they are not declared in the current year.

If Preference Shares Are Cumulative and No Dividends Are Declared