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Explain the… (Class 12 Business Studies SQP 2023-24, Q28)

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Business StudiesCBSE Class 12 · Sample paper, session 2023-24 · 4 marks · Long answer

CBSE Class 12 Business Studies sample paper 2023-24: question 28

From the official CBSE sample question paper for 2023-24, section C, question 28, for 4 marks. Try it first; the hints and our step-by-step solution are below.

Q28 · 4 marks · Long answerFinancial Management

Explain the following factors affecting the dividend decision of the company:
a) Taxation Policy
b) Cash Flow Position

Source: official sample paper from cbseacademic.nic.in (PDF). See it in the full Sample paper 2023-24.

Hints

Open one hint at a time and try again before the next.

Hint 1

How does the tax on dividends change the board's choice?

Hint 2

Can a profitable company without cash pay a dividend?

Step-by-step solution

Each step shows the marks it earns, as an examiner would award them. Checked by an independent re-solve from the question paper.

  1. a) Taxation policy: If the tax burden on dividends is higher, companies prefer to pay lower dividends; if it is lower, higher dividends can be paid. (The scheme refers to dividend distribution tax on companies; that tax was abolished from 1 April 2020 and dividends are now taxed in the hands of shareholders, but the principle is the same.)

    2 marks

  2. b) Cash flow position: Paying a dividend is a cash outflow, so the company needs enough cash available to declare a dividend, even if it has profits.

    2 marks

Answer: Higher tax on dividends favours lower dividends; dividends can be paid only if enough cash is available.

Where the marks are

  • Each factor: 2 marks

Revise the chapter

Practise this chapterBoard-style questions from Financial Management, one at a time, marked against the answer key and marking points.Back to the full paperSample paper 2023-24: every question, by section.

The question is transcribed from the official paper; figures are described in words. The solution, hints and chapter tag are ours. Spotted an error? Write tosupport@questionbuddy.in.