Does difference between cumulative and non-cumulative shares

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Actually, it's a bit more "expensive" for the company than just letter a! While P5,000,000 is indeed the amount for the ordinary shares ($5,000,000 \times P1$), we have to look at those 6% cumulative preference shares first. In the world of accounting, "cumulative" is a big deal. It means if the company skips dividends (like NMB did during the 2-year recession), those unpaid dividends pile up. Before the company is allowed to pay a single cent to ordinary shareholders, they must first pay: 1. Year 1 skip: P6,000,000 2. Year 2 skip: P6,000,000 3. Current Year: P6,000,000 4. Subtotal for Preference: P18,000,000 Only after paying that P18M can they pay the P5,000,000 to the ordinary shareholders. Add them together: $P18,000,000 + P5,000,000 = \mathbf{P23,000,000}$ (Letter d). If the shares were non-cumulative, your answer of P5,000,000 (plus just this year's preference dividend) would be much closer! Get the instant assignment help. Does the difference between cumulative and non-cumulative shares make sense now?

Reference no: EM134007474

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