After payment of all claims apart from payments to capital contributors, the liquidator prepared the following statement of shareholders' equity for Train Ltd:
$\begin{array}{llcc}
\text { Preference shares $ (20000) $ } &40000 \
\text { Ordinary shares (100 000) } &300000\
\text {Accumulated losses } &\underline{(155000)}\
\text { Total} &185000\
\end{array}$

There is $125 000 cash remaining for distribution and all shares are fully paid.What is the dividend per preference share if preference shareholders rank ahead of ordinary shareholders?

Question

After payment of all claims apart from payments to capital contributors, the liquidator prepared the following statement of shareholders' equity for Train Ltd:
$\begin{array}{llcc}
  \text { Preference shares $ (20000) $ } &40000  \
 \text { Ordinary shares (100 000) } &300000\
 \text {Accumulated losses  } &\underline{(155000)}\
 \text {  Total} &185000\
\end{array}$

There is $125 000 cash remaining for distribution and all shares are fully paid.What is the dividend per preference share if preference shareholders rank ahead of ordinary shareholders?

Quizplus · Accepted Answer

Preference shareholders rank ahead of ordinary shareholders in the distribution of assets upon liquidation. There are 20,000 preference shares, and with $125,000 available for distribution exclusively to these shareholders (since they are prioritized and the amount is sufficient to cover their claims), each preference share would receive $125,000 / 20,000 = $6.25. However, since this option is not available, it indicates a misunderstanding of the question or a mistake in the calculation. The correct approach to determine the dividend per preference share, given the options, would involve understanding the specific rights and conditions attached to these shares, which are not detailed in the question. The provided answer mistakenly calculates the dividend per share based on the total cash available without considering the specific distribution rights or the correct calculation method. The correct answer should reflect the actual dividend per preference share based on the liquidation hierarchy and the specific rights of preference shareholders, which typically involve a fixed dividend rate or a priority in asset distribution.

After Payment of All Claims Apart from Payments to Capital