Dividend rate after reserve transfer: A company has 50,000 shares of par value $100 each. It declares a total of $125,000, but transfers $50,000 to the reserve fund and distributes the remainder as dividend. What percentage dividend is paid to shareholders?

Introduction / Context: Sometimes an announced figure includes allocations to reserves. Only the portion actually distributed to shareholders should be used to compute the dividend rate on the paid-up (par) capital.

Given Data / Assumptions:

• Total shares = 50,000; par value = $100 each.
• Declared total = $125,000; transfer to reserve = $50,000.
• Dividend distributed = $125,000 − $50,000 = $75,000.

Concept / Approach: Dividend rate (%) = (Amount distributed as dividend / Total par capital) * 100. Total par capital = shares * par value.

Step-by-Step Solution:

Verification / Alternative check: 1% of $5,000,000 is $50,000; adding half percent (0.5%) gives $25,000 more; total $75,000 confirms 1.5%.

Why Other Options Are Wrong: 2.75%, 2%, 1.25%, and 1% do not agree with the exact $75,000 on $5,000,000 calculation.

Common Pitfalls: Using the declared total instead of the distributed amount; forgetting to base the percentage on par capital.

Final Answer: 1.5%