WAEC Accounting 2024 Theory — Question 7

Model answer

(a) Differences: 1. Equity shareholders are part-owners of the company, while debenture holders are lenders who receive interest, not dividends, as return on their investment. 2. Equity share capital is generally permanent/perpetual, while debentures usually have a fixed maturity date on which they are repaid. 3. Equity shareholders can vote at company meetings and share in company profits (dividends), while debenture holders have a fixed claim (interest) regardless of profit and generally do not vote. (b)(i) Cumulative preference shares: unpaid dividends in a particular year accumulate and are carried forward to be paid in a later year once profits allow. (ii) Redeemable preference shares: shares that the company can buy back (redeem) at a future date, either by paying cash or converting them to ordinary shares. (iii) Participating preference shares: in addition to their fixed preferential dividend, holders are entitled to share in any additional/surplus profits along with ordinary shareholders.