Cumulative preference shares accumulate unpaid dividends

Steps:

• Company skips preference dividend due to insufficient profits this year.
• Investor anticipates payment of the outstanding dividend next year.
• This expectation aligns with dividends carrying forward for future payment.
• Matches cumulative shares, where arrears must be cleared before ordinary dividends.

Why A is correct:

• Cumulative preference shares require unpaid dividends (arrears) to be paid in full before any dividends to ordinary shareholders, per company law definitions.

Why the others are wrong:

• B. Non-cumulative: Unpaid dividends lapse and are not payable in future years.
• C. Participating: Entitles holders to extra dividends if profits exceed fixed rate, but does not accumulate arrears.
• D. Redeemable: Shares can be bought back by the company at a set date, unrelated to dividend accumulation.

Final answer: A