Skip to content

CS Executive · Corporate Accounting and Financial Management · Accounting for Share Capital

Sunrise Ltd has preference shares that carry a fixed-rate preferential dividend and priority in repayment of capital. The shares also allow holders to participate with equity shareholders in surplus remaining after all capital is repaid on winding up. How are these shares treated under the Companies Act, 2013?

The shares remain preference share capital. The Act states that capital is deemed preference capital even if, in addition to its preferential rights, it participates fully or partly with other capital in dividends or in surplus after all capital is repaid on winding up.

  1. AAs equity share capital because they participate in surplus
  2. BAs preference share capital despite the participation rightCorrect
  3. CAs a separate third kind of capital
  4. DAs debentures

Explanation

The Act deems capital to be preference capital even if, besides the preferential rights, it participates in dividends or in surplus after all capital is repaid. Equity capital is all capital that is not preference capital, so these shares remain preference.

Did you get it right without looking?

One question tells you little. A timed set on Accounting for Share Capital shows your real accuracy, how long you take and where you lose marks.

Practise Accounting for Share CapitalFree diagnostic mock

More Accounting for Share Capital questions