Cumulative Preference Shares Definition

Steps:

• Identify key features: fixed annual dividend and unpaid dividends carried forward to future profits.
• Recall preference shares types: cumulative vs. non-cumulative, based on dividend arrears handling.
• Match description to cumulative feature where arrears accumulate and must be paid before ordinary dividends.
• Eliminate options not matching fixed dividend with accumulation.

Why A is correct:

• Cumulative preference shares entitle holders to a fixed dividend, with any arrears paid from future profits before ordinary shareholders receive dividends, per company law definitions.

Why the others are wrong:

• B. Debentures are debt instruments with fixed interest, not dividends or shareholder equity.
• C. Ordinary shares have variable dividends with no fixed entitlement or accumulation rights.
• D. Participating preference shares allow extra dividends beyond fixed rate if profits allow, but without mandatory arrears payment.

Final answer: A