Daffodils Tech Ltd. is a software engineering company, a technology partner to many
dynamic organisations across the globe. The company ability to look beyond technologies
and deliver innovative and progressive solutions has been lauded by its clients as well as the
tech community worldwide. The company experiment with the latest technologies, design
approaches and development methodologies to build cutting edge software products.
The company has issued equity and preference shares to meet its financial
requirements.Other sources of finance have not been considered for fund raising. This has
resulted in payment of large amount of taxes to the government. The company wants to seek
tax benefits and hence approaches its financial consultant for an advice.
On the basis of the given information about Daffodils Tech Ltd., answer the following
questions:
(a) Why does issue of preference shares do not provide tax benefits to the company?
(b) List any two sources which will provide such benefit to the company.
(c) State any two merits and demerits of one of the sources of funds specified in part (b).