Question 24 of 38
Q.Distinguish between the following:
Dividend and Interest
Maharashtra MsbshseMaharashtra HSC (MSBSHSE) Board 2024Subjective· 4mImportance★★★★★
63% · 24/38 Questions
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Start your 14-day free trial to unlock the full solution →Dividend is a return on ownership capital paid to shareholders out of profits and is not compulsory; interest is a fixed return on borrowed capital paid to creditors and is a compulsory charge irrespective of profit.
A company deals with two classes of contributors: owners (shareholders) who receive dividend, and creditors (debenture holders, depositors, lenders) who receive interest. These two payments differ fundamentally.
| Basis | Dividend | Interest |
|---|---|---|
| Meaning | Share of profit paid to shareholders | Charge paid for the use of borrowed money |
| Paid to | Shareholders (owners) | Debenture holders, depositors, lenders (creditors) |
| Nature of payment | Appropriation of profit | Charge against profit / an expense |
| Compulsion | Not compulsory; paid only if there are profits and it is declared | Compulsory; payable whether or not there is profit |
| Rate | Not fixed; varies with profits (except a fixed rate on preference shares) | Fixed rate agreed at the time of borrowing |
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