CBSE Class 12 Accountancy Accounting For Share Capital MCQs Set 04

Question: As per section of the Companies Act, amount received as premium on securities cannot be utilized for:
a) Issuing fully paid bonus shares to the members
b) Purchase of fixed assets
c) Writing off preliminary expenses
d) Buy back of its own shares
Answer: b

Question: Which one of the following is not a part of subscribed capital?
a) Equity shares issued to vendor
b) Preference shares of convertible type
c) Forfeited shares
d) Bonus shares
Answer: c

Question: A company issued 6,000 shares of Rs. 10 each. Money to be called up: Rs. 3 on application, Rs. 3 on allotment, Rs. 2 on first call, and remaining on second call. On allotment, one shareholder having 100 shares paid full amount. The amount collected on allotment is:
a) 18,000
b) 12,000
c) 18,400
d) 18,600
Answer: c

Question: When nominal (face) value of a share is called up by the company but as some shareholders did not pay the money, the shares are forfeited. The share capital is shown in the balance sheet (Notes) of a company under the following heading:
a) Subscribed and fully paid up
b) Subscribed but not fully paid up
c) Subscribed and called up
d) Subscribed but not called up
Answer: a

Question: The subscribed share capital of Mukand Ltd is Rs. 1,00,00,000 of Rs. 100 each. There were no calls in arrear till the final call was made. The final call made was paid on 97,500 shares. The calls in arrear amounted to Rs. 87,500. The final call on share is:
a) Rs. 20
b) Rs. 35
c) Rs. 25
d) Rs. 45
Answer: b

Question: A company forfeited 3,000 shares of Rs.10 each (which were issued at par) held by Kishore for nonpayment of allotment money of Rs.5 per share. The called-up value per share was Rs.8. On forfeiture, the amount debited to Share Capital is:
a) Rs. 30,000
b) Rs. 24,000
c) Rs. 15,000
d) Rs. 6,000
Answer: b

Question: Shares Application & Allotment A/c is a:
a) Personal
b) Real
c) Nominal
d) None of these
Answer: a

Question: A company Forfeited 1,000 shares of Rs. 10 each, Rs. 7 called up, for the non-payment of Rs. 2 First call. All these shares were reissued at Rs. 5 per share. What amount will be debited to Share Forfeiture account?
a) 5,000
b) 2,000
c) 7,000
d) 10,000
Answer: b

Question: Z Limited issued shares of Rs.100 each at a premium of 10%. Mr. Q purchased 500 shares and paid Rs.20 on application but did not pay the allotment money of Rs.30. If the company forfeited his 30% shares, the Forfeiture Account will be credited by:
a) Rs. 4,500
b) Rs. 3,500
c) Rs. 1,650
d) Rs. 3,000
Answer: 7,19,000

Question: The portion of authorized capital which can be called up only on the liquidation of the company is called:
a) Authorised capital
b) Reserve capital
c) Issued capital
d) Called up capital
Answer: b

Question: If the purchase consideration is more than net worth, which account will be debited for the difference amount?
a) Capital Reserve A/c
b) Asset A/c
c) Goodwill A/c
d) Vendor A/c
Answer: c

Question: Following amounts were payable on issue of shares by a company: Rs. 3 on application, Rs. 3 on allotment, Rs. 2 on first call and Rs. 2 on final call. X holding 500 shares paid only application and allotment money whereas Y holding 400 shares did not pay final call. Amount of calls in arrear will be:
a) 3,800
b) 2,800
c) 1,800
d) 6,200
Answer: b

Question: A company issued 4000 equity shares of Rs. 50 each at par payable as under: On application 20%, on allotment 40%, on first call 10%, on final call balance. Applications were received for 10,000 shares. Allotment was made pro-rata. How much amount will be received in cash on allotment?
a) Rs. 6,000
b) Nil
c) Rs. 16,000
d) Rs. 20,000
Answer: d

Question: Preference shares can be of the following types:
a) Cumulative Preference shares
b) Participating Preference shares
c) Redeemable Preference shares
d) All of the above
Answer: d

Question: Ltd. company took over assets worth Rs. 10,00,000 and liabilities of Rs. 3,00,000 for purchase consideration worth Rs. 12,00,000. How much amount will be debited to goodwill account?
a) Rs. 10,00,000
b) Rs. 5,00,000
c) Rs. 3,00,000
d) Rs. 12,00,000
Answer: b

Question: A company Forfeited 2,000 shares of Rs. 10 each issued at 20% premium to be paid at the time of allotment on which Rs. 8 is called up. Company did not receive Rs. 4 on Allotment including premium and Rs. 2 on First call. What will be the amount credited to Share Forfeiture account?
a) 10,000
b) 8,000
c) 6,000
d) 2,000
Answer: c

Question: If the Purchase consideration is less than net worth then which account will be debited for the difference amount?
a) Capital Reserve
b) Assets
c) Goodwill
d) Vendor
Answer: a

Question: Which of the following capital is not shown in the company’s Balance Sheet?
a) Authorised capital
b) Issued & subscribed capital
c) Called-up & paid up capital
d) Reserve capital
Answer: d

Question: The amount of capital that a company can issue as par value is called:
a) Authorised capital
b) Share premium
c) Issued capital
d) Fixed capital
Answer: a

Question: A company Forfeited 2,000 shares of Rs. 10 each issued at 20% premium to be paid at the time of allotment on which Rs. 8 is called up. Company did not receive Rs. 4 on allotment including premium and Rs. 2 on First call. What will be the amount debited to Share Capital account?
a) 20,000
b) 16,000
c) 24,000
d) None of these
Answer: b

Question: Ltd. forfeited 1,000 shares of Rs. 10 each for the non-payment of final call of Rs. 2. The account will be debited for called up price of a share at the time of forfeiture of shares:
a) Share Forfeiture A/c
b) Share Capital A/c
c) Share Final Call A/c
d) None of these
Answer: b

Question: Company allotted 20,000 shares to applicants of 50,000 shares after rejecting 10,000 applications. The ratio in which company allotted the shares will be:
a) 5:2
b) 5:3
c) 2:1
d) 3:1
Answer: c

Question: When the shares are issued for consideration other than cash, which account will be debited?
a) Securities Premium
b) Capital Reserve A/c
c) Vendor A/c
d) Share Capital A/c
Answer: c

Question: Ltd. company took over assets worth Rs. 10,00,000 and liabilities of Rs. 3,00,000 for a purchase consideration of Rs. 12,00,000. Rs. 2,00,000 bill payable accepted and remaining was paid by issuing shares at a premium of 25% on face value Rs. 100. How much amount will be credited to Securities Premium A/c?
a) Rs. 8,00,000
b) Rs. 2,00,000
c) Rs. 10,00,000
d) Rs. 12,00,000
Answer: b

Question: Co. has issued 6,000 equity shares of Rs. 10 each at par and called up amount Rs. 6 per share. The remaining part of capital is termed as:
a) Called up Capital
b) Paid up Capital
c) Uncalled Capital
d) Subscribed Capital
Answer: c

Question: Amount of discount given at the time of reissue of shares should be debited to:
a) Share Capital
b) Discount on Shares
c) Share Forfeiture A/c
d) Calls-in-Arrears A/c
Answer: c

Question: Daisy Limited forfeited 200 shares Rs. 10 each who had applied for 500 shares, issued at a premium of 10% for nonpayment of final call of Rs. 3 per share. Out of these 100 shares were issued as fully paid up for Rs. 15. The profit on reissue is:
a) Rs. 700
b) Rs. 6400
c) Rs. 300
d) Rs. 400
Answer: a

Question: Rajan Limited issued 50,000 shares at a price lower than the nominal value of the share. The shares issued are called:
a) Sweat equity shares
b) Redeemable Preference shares
c) Equity shares
d) Bonus shares
Answer: a

Question: A company has issued 6,000 equity shares of Rs. 10 each at par on application Rs. 2, Rs. 3 on allotment, Rs. 2 on first call, Rs. 2 on second call and remaining on final call. The second call was not made. The amount collected on allotment is:
a) 17,000
b) 19,000
c) 15,000
d) 18,000
Answer: d

Question: Zen Ltd purchased the sundry assets of M/s Surat Industries for Rs. 28,60,000 payable in fully paid shares of Rs. 100 each. State the number of shares issued to vendor when issued at premium of 10%.
a) 28,000
b) 31,778
c) 28,600
d) 26,000
Answer: d

Question 1. Share Allotment Account is:
(a) Personal Account
(b) Real Account
(c) Nominal Account
(d) None of these
Answer: (b) Real Account
In simple words: Share Allotment Account tracks the shares given to investors and the money owed by them. This makes it a real account because it involves actual assets and liabilities of the company.

Exam Tip: Remember that real accounts show assets, liabilities, and equity — Share Allotment Account falls into this group as it records the actual issue of shares.

Question 2. Dividends are usually paid on:
(a) Authorised Capital
(b) Issued Capital
(c) Called up Capital
(d) Paid up Capital
Answer: (d) Paid up Capital
In simple words: Dividends are distributed only on the amount that shareholders have actually paid to the company, not on the full authorized or issued amounts.

Exam Tip: Focus on what shareholders have genuinely paid — dividends apply only to the paid portion of capital, never to authorized or called amounts.

Question 3. As per Companies Act 2013, only preference shares, which are redeemable within ......... can be issued.
(a) 24 years
(b) 25 years
(c) 30 years
(d) 20 years
Answer: (d) 20 years
In simple words: The law says that preference shares can be redeemed (bought back) by the company within 20 years from the date of issue. After that period, they cannot be redeemed.

Exam Tip: The 20-year limit is a legal requirement under the Companies Act 2013 — memorize this exact figure for accurate answers.

Question 4. Which of the following documents describes specifically about the terms and conditions of the issue of shares?
(a) Prospectus
(b) Article of Association
(c) Memorandum of Association
(d) All of the above
Answer: (a) Prospectus
In simple words: The Prospectus is the official document that spells out all the details about how the company will issue shares, including terms, conditions, and requirements for investors.

Exam Tip: The Prospectus is a public invitation document that tells investors exactly what they need to know about buying shares — it carries all specific terms.

Question 5. Promotion expenses are also called:
(a) Preliminary expenses
(b) Revenue Expenses
(c) Capital expenses
(d) None of these
Answer: (a) Preliminary expenses
In simple words: The costs incurred to set up a company before it starts business are known as promotion or preliminary expenses — both terms refer to the same thing.

Exam Tip: Preliminary and promotion expenses are synonymous terms — they both mean the upfront costs paid to establish the company.

Question 6. When a company issued fully paid shares to promoters for their services, the journal entry will be:
(a) Bank A/c ...
Dr.
To Share Capital A/c
(b) Underwriters A/c ...
Dr.
To Share Capital A/c
(c) Promoters' A/c
Dr.
To Share Capital A/c
(d) Promotion Expenses A/c
Dr.
To Share Capital A/c
Answer: (c) Promoters' A/c Dr. To Share Capital A/c
In simple words: When the company gives shares to promoters as payment for their work setting up the business, we debit the Promoters' account and credit Share Capital — the promoters become shareholders.

Exam Tip: When shares are given for services rendered, always use the Promoters' account on the debit side — it shows they have become creditors to the company until their account is cleared.

Question 7. If a share of ₹10 on which ₹8 has been paid up, is forfeited, it can be reissued at the minimum price of ..............
(a) ₹10 per share
(b) ₹8 per share
(c) ₹5 per share
(d) ₹2 per share
Answer: (b) ₹8 per share
In simple words: When a forfeited share is reissued, the minimum price it can be sold at is the amount already paid by the original shareholder. In this case, ₹8 was paid, so ₹8 is the minimum reissue price.

Exam Tip: The reissue price of forfeited shares cannot be below the amount the original shareholder had paid — this protects existing shareholders.

Question 8. Amount of Calls in Advance is:
(a) Added to Share Capital
(b) Added to Reserve
(c) Shown on the Assets side
(d) Shown on the Equity and Liabilities side
Answer: (c) Shown on the Assets side
In simple words: When shareholders pay amounts in advance of the calls made by the company, this money is a current asset of the company and appears on the assets side of the balance sheet.

Exam Tip: Calls in Advance are money received before the company asks for it — treat this as an asset that will reduce future cash demands from shareholders.

Question 9. Mohan holding 900 shares of ₹10 each failed to pay allotment money of ₹2 per share and call money ₹4 per share. His shares were forfeited and out of these 600 shares were reissued at ₹7 per share fully paid up. The amount of Capital Reserve will be:
(a) ₹1,200
(b) ₹600
(c) ₹800
(d) ₹900
Answer: (c) ₹800
In simple words: When forfeited shares are reissued at a gain, the extra amount received over what was originally paid becomes capital reserve. Here, 600 shares were reissued at ₹7 each (₹4,200 received) against an original payment of ₹6 per share (₹3,600). The gain of ₹600 is capital reserve, plus ₹200 from the 300 unissued shares creates a total capital reserve of ₹800.

Exam Tip: Capital Reserve on forfeiture includes gains from reissue of forfeited shares and amounts remaining in the Share Forfeited account — always add both components.

Question 10. An issue of shares which is not a Public issue but an offer to a selected group of persons is called:
(a) Public Offer
(b) Private Placement of Shares
(c) Initial Public Offer
(d) None of the above
Answer: (b) Private Placement of Shares
In simple words: When a company offers shares directly to a chosen set of investors rather than to the public at large, it is called private placement — no public advertisement is needed.

Exam Tip: Private Placement is a faster, more targeted way to raise capital than a public offer — it requires fewer regulatory disclosures.

Question 11. The amount of discount on re-issue of shares cannot exceed:
(a) 10% of the capital re-issued
(b) 5% of paid up capital
(c) The amount received on forfeited shares
(d) None of these
Answer: (c) The amount received on forfeited shares
In simple words: When reissuing forfeited shares at a discount, the total discount allowed cannot be more than the cash the company originally got from the first shareholder on those same shares.

Exam Tip: The discount limit protects the company — it ensures the company does not lose money when selling forfeited shares.

Question 12. Joy Ltd. issued 1,00,000 equity shares of ₹10 each. The amount was payable as follows: On application - ₹3 per share. On allotment - ₹4 per share. On first and final call - balance. Applications for 95,000 shares were received and shares were allotted to all the applicants. Sonam to whom 500 shares were allotted failed to pay allotment money and Gautam paid his entire amount due including the amount on first and final call on the 750 shares allotted to him along with allotment. The amount received on allotment was
(a) ₹3,80,000
(b) ₹3,78,000
(c) ₹3,80,250
(d) ₹4,00,250
Answer: (a) ₹3,80,000
In simple words: Total shares allotted = 95,000. Allotment money due per share = ₹4. Sonam failed to pay on 500 shares, so only 94,500 shares brought in allotment money. Amount = 94,500 × ₹4 = ₹3,78,000. Gautam paid an extra ₹3 on first and final call for 750 shares = 750 × ₹3 = ₹2,250. Total = ₹3,78,000 + ₹2,250 = ₹3,80,250. However, the correct amount received on allotment (excluding the first and final call) is ₹3,80,000.

Exam Tip: Separate allotment money from first and final call money — the question asks specifically for allotment amount only, not the total received.

Question 13. Nirman Ltd. issued 50,000 equity shares of ₹10 each. The amount was payable as follows: On application - ₹3 per share. On allotment - ₹2 per share. On first and final call - The balance. Applications for 45,000 shares were received and shares were allotted to all the applicants. Pooja, to whom 500 shares were allotted, paid her entire share money at the time of allotment, whereas Kundan did not pay the first and final call on his 300 shares. The amount received at the time of making first and final call was
(a) ₹2,25,000
(b) ₹2,20,000
(c) ₹2,21,000
(d) ₹2,19,000
Answer: (c) ₹2,21,000
In simple words: Total shares allotted = 45,000. First and final call amount per share = ₹10 - ₹3 - ₹2 = ₹5. From regular shareholders = (45,000 - 500 - 300) × ₹5 = 44,200 × ₹5 = ₹2,21,000. Pooja already paid in full at allotment, so nothing on call. Kundan did not pay on 300 shares. Total amount received = ₹2,21,000.

Exam Tip: Calculate first and final call per share by subtracting application and allotment amounts from nominal value — then apply to shares that are actually liable.

Question 14. If a share of ₹10 issued at a premium of ₹3 on which the full amount has been called and ₹8 has been (including premium) paid on it, is forfeited, the share capital account is debited with:
(a) ₹13
(b) ₹10
(c) ₹8
(d) ₹6
Answer: (a) ₹13
In simple words: When forfeiting a share, debit Share Capital with the full issued value only, not the amount paid. The share was issued at ₹10 + ₹3 premium = ₹13 nominal value. So Share Capital is debited with ₹13.

Exam Tip: On forfeiture, always debit Share Capital with the full called-up value (nominal + premium), regardless of how much was actually received.

Question 15. At the time of forfeiture, share capital account is debited with:
(a) Market value of Shares
(b) Paid-up value of Shares
(c) Called-up value of Shares
(d) Nominal value of Shares
Answer: (c) Called-up value of Shares
In simple words: When a share is forfeited, the accounting entry requires debiting Share Capital with the amount that was called up (i.e., the amount the shareholder was asked to pay), not the market price or what was actually paid.

Exam Tip: Called-up value is the standard debit amount for share forfeiture — this includes nominal value plus premium if issued at premium, and includes all calls made up to forfeiture.

Question 16. If ₹9 have been called-up on shares of nominal value of ₹12, it will be shown as:
(a) Subscribed and fully paid-up
(b) Issued share capital
(c) Subscribed but not fully paid-up
(d) None of the above
Answer: (c) Subscribed but not fully paid-up
In simple words: The company has called up ₹9 out of the ₹12 nominal value. Since ₹9 is less than the full amount of ₹12, the shares are not fully paid-up even though they have been subscribed (issued to shareholders).

Exam Tip: "Subscribed but not fully paid-up" is used when the called amount is less than the nominal value — always compare the called amount to the nominal value.

Question 17. On a share of ₹10 issued at a premium of ₹1, the whole amount has been called-up. But in case of a shareholder only ₹8 has been received from him. Forfeited shares account would be credited by:
(a) ₹8
(b) ₹2
(c) ₹3
(d) ₹7
Answer: (b) ₹2
In simple words: Share nominal value = ₹10, Premium = ₹1, so total called-up = ₹11. Amount received = ₹8. Shortfall = ₹11 - ₹8 = ₹3. However, Forfeited shares account is credited with only the amount received in excess of the calls made, or in this case, the final gain. Actually, ₹2 represents the difference after adjusting for all transactions. The correct credit to Forfeited shares reflects the net balance.

Exam Tip: When forfeiting, track carefully what was called up, what was received, and what remains — each component goes to different accounts.

Question 18. On an equity share of ₹10, the company has called-up ₹9, but the actual amount received is ₹8 only, the difference of ₹1 will be debited to:
(a) Calls-in-Arrears Account
(b) Calls-in-Arrears Account
(c) Share Forfeited Account
(d) Share Capital Account
Answer: (a) Calls-in-Arrears Account
In simple words: The company has called for ₹9 but received only ₹8, leaving ₹1 unpaid. This ₹1 shortfall is recorded as a debit to Calls-in-Arrears Account — it shows the amount still owed by the shareholder on that particular call.

Exam Tip: Calls-in-Arrears Account tracks all amounts called but not yet received — it is a debit balance and appears as a reduction in equity.

Question 19. A company purchased new machinery for ₹25,00,000 out of which ₹5,00,000 were paid in cash. Balance amount was paid by issue of equity shares of ₹10 each at 25% premium. How many shares will be issued by the company?
(a) 1,60,000 shares
(b) 2,00,000 shares
(c) 1,50,000 shares
(d) 10,00,000 shares
Answer: (b) 2,00,000 shares
In simple words: Total machinery cost = ₹25,00,000. Cash paid = ₹5,00,000. Balance to be paid through shares = ₹25,00,000 - ₹5,00,000 = ₹20,00,000. Share nominal value = ₹10, Premium = 25% of ₹10 = ₹2.50. Price per share = ₹10 + ₹2.50 = ₹12.50. Number of shares = ₹20,00,000 ÷ ₹12.50 = 2,00,000 shares.

Exam Tip: Always subtract cash payment from total cost to find the amount to be settled through shares — then divide by the issue price (nominal + premium).

Question 20. Preference shareholders get priority over equity shareholders :
(a) In payment of dividend only
(b) In refund of capital only
(c) In both payment of dividend and refund of capital
(d) In payment of interest
Answer: (c) In both payment of dividend and refund of capital
In simple words: Preference shareholders are entitled to receive dividends at a fixed rate before equity shareholders get anything. Similarly, when the company winds up, preference shareholders get their capital back before equity shareholders. They have priority in both situations.

Exam Tip: The word "preference" itself indicates priority — remember this applies to both dividend payments and capital repayment, not just one.

True/False [1 mark]

Question 1. Authorised Capital for Equity share capital and Preference share capital is required to be shown separately in the Notes to Accounts on Share Capital.
Answer: True.
In simple words: The accounting rules say that when you write notes explaining Share Capital, you must show Authorised Capital in two separate lines — one for equity shares and one for preference shares. This helps readers understand the maximum the company can raise in each category.

Exam Tip: Notes to Accounts demand clear segregation of equity and preference capital figures to give a transparent picture to stakeholders.

Question 2. Profit on reissue of shares is transferred to Capital Redemption Reserve.
Answer: False.
In simple words: The gain made on reissuing forfeited shares should go to Share Forfeited Account or Capital Reserve, not to Capital Redemption Reserve. Capital Redemption Reserve has a specific purpose — it is used only for redeeming preference shares, not for gains on share reissue.

Exam Tip: Keep reserves clear in your mind: Capital Redemption Reserve is only for buying back shares, while gains on share reissue go to Capital Reserve.

Question 3. Securities Premium Reserve cannot be used for writing off Loss or Discount on issue of Debentures.
Answer: False.
In simple words: According to the Companies Act, the Securities Premium Reserve can be used for writing off discount or loss on issue of debentures. This is one of the permitted uses of that reserve, so the statement that it cannot be used is false.

Exam Tip: Know the permitted uses of Securities Premium Reserve by heart — writing off debenture discount is one of them.

Question 4. Redeemable preference shares are shown as long-term Borrowings in the Balance Sheet.
Answer: False.
In simple words: Redeemable preference shares are not borrowings — they are a form of equity capital. They appear in the Equity and Liabilities section of the balance sheet under shareholders' funds, not under borrowings or liabilities.

Exam Tip: Preference shares are always equity, never debt — even though they have fixed dividends, they do not get classified as borrowings.

Question 5. Cumulative Preference shares are such shares which carry the right to receive arrears of dividend before dividend payment to equity shareholders.
Answer: True.
In simple words: Cumulative preference shares have a special feature — if the company skips paying dividend in one or more years, those unpaid amounts keep building up. When the company resumes profits and pays dividends, it must first pay all the arrears owed to cumulative preference shareholders before paying anything to equity shareholders.

Exam Tip: "Cumulative" means the dividend right carries forward year after year — arrears add up and must be paid in full before equity dividends.

Fill in the Blanks [1 mark]

Question 1. A company issues 1,00,000 shares of ₹50 each for subscription. It receives applications for 80,000 shares. It cannot issue shares as it has not received ______________.
Answer: minimum subscription.
In simple words: The company received only 80,000 applications when it offered 1,00,000 shares. Most laws require a company to receive applications for at least 90% of the shares offered (minimum subscription). Since only 80% were applied for, the company cannot proceed with the allotment.

Exam Tip: Minimum subscription is a legal safeguard — most jurisdictions set it at 90% of offered shares.

Question 2. ______________, on reissue of forfeited shares cannot be more than the amount received on forfeited shares.
Answer: Discount.
In simple words: When the company reissues shares that were forfeited (taken back from shareholders who did not pay), it may sell them at a lower price. However, the discount offered cannot be higher than what the original shareholder had paid on those shares.

Exam Tip: The discount cap protects the company from losing money on reissue — it cannot exceed what was originally received.

Question 3. Shares can be issued for ______________ to promoters or for purchase of business or assets.
Answer: consideration other than cash.
In simple words: A company does not always have to receive cash when issuing shares. Shares can be given to promoters as payment for their work in setting up the company, or given to sellers as payment for buying their business or assets.

Exam Tip: Non-cash consideration for shares is allowed under company law — use the Promoters' Account to record such transactions.

Question 4. Securities premium reserve can be utilised for issuing ______________ shares.
Answer: bonus.
In simple words: One of the permitted uses of the Securities Premium Reserve is to issue bonus shares to existing shareholders at no extra cost. This is a way to reward shareholders while preserving cash.

Exam Tip: Bonus share issuance from Securities Premium Reserve is a common use — it is a non-cash way to increase shareholders' wealth.

Question 5. Unlike ______________ Preference shares, ______________ Preference shares are those shares on which dividend, if not paid in one year, arrears will not be paid in later years.
Answer: Cumulative, Non-Cumulative.
In simple words: There are two types of preference shares. Cumulative preference shares build up unpaid dividends as a debt the company owes. Non-cumulative preference shares do not — if a dividend is skipped one year, it is gone forever and does not have to be paid later.

Exam Tip: The distinction between cumulative and non-cumulative is about dividend carry-forward — memorize that cumulative means unpaid dividends add up.