Which statement describes cumulative preference shares?

Cumulative preference shares are a specific type of preferred stock that has a key characteristic regarding dividend payments. The correct statement about cumulative preference shares is that they entitle their holders to payment of both current dividends and back dividends, meaning if dividends are omitted in any year, those missed payments accumulate and must be paid out in the future before any dividends can be distributed to common shareholders.

This is a vital feature because it provides some level of security and assurance to the holders of cumulative preference shares that they will eventually receive any dividends owed to them, even if the company faces financial difficulties in the interim. Hence, the cumulative nature of these shares protects investors by ensuring that they are prioritized over common shareholders when dividends are declared in future periods.

In contrast, the options that suggest granting current dividends without back dividends, sharing with common shares in excess distribution, or entitlements to only fixed preferred dividends do not capture the essence of cumulative preference shares and their benefit of accumulating unpaid dividends.