If an associate or joint venture has outstanding cumulative preference shares that are held by parties other than the entity and classified as ____________, the entity computes its share of profits or losses after adjusting for the dividends on such shares, whether or not the dividends have been declared.

Question

Quizplus · Accepted Answer

Cumulative preference shares are a form of equity financing. They give their holders a priority claim on the company's earnings and any unpaid dividends accumulate and must be paid before any dividends can be paid to common stockholders. Therefore, to determine the associate or joint venture's profit or loss share, it is necessary to adjust for the dividends on the preference shares, which are classified as equity.

If an Associate or Joint Venture Has Outstanding Cumulative Preference