Question 2
- Interest an profit;
- Share and debenture;
- Ordinary share and preference share;
- Cumulative preference share and participating preference share;
- Cum div and ex div.
Differentiate between the following terms:
Observation
Comments
Some candidates who attempted this question did well while some did not use conjunction. Others could not differentiate on the same base.
The expected responses are.
- Interest and profit
- Share and debenture
- Ordinary shares and preference shares
- Cumulative preference shares and participating preference shares
- Cum div and ex div
Interest is the reward earned from the use of capital while profit is the reward for entrepreneurship. 113
A share shows part ownership of a company while a debenture is debt owed by a company.
OR
Shares earn dividend while debentures earn fixed interest.
Ordinary shares are shares whose holders are paid after all other shareholders have received their dividend while preference shares are shares whose owners receive dividend first.
OR
Holders of ordinary shares have voting right whilst those of preference shares have no voting rights.
Cumulative preference shares are shares whose owners are entitled to payment of unpaid dividend during future years when profit is made while participating preference shares are shares whose holders are entitled to extra dividend if a certain level of profit is attained.
If a person buys shares cum div, it means that the dividend that is about to be paid will be his ; on the other hand , if a person buys shares ex-div , it means that the dividend that is to be paid will not be paid to him but to the previous owner.