Calculation of Value of Preference Share:

Given data:
Preference share capital: ₹400,000
Dividend arrear: 2 years
Normal rate: 10%
Face value: ₹100

Step 1: Calculate the total dividend arrear:
Dividend arrear is the unpaid dividend for the previous years. In this case, the dividend arrear is for 2 years.

Dividend arrear = Preference share capital x Dividend arrear period
Dividend arrear = ₹400,000 x 2
Dividend arrear = ₹800,000

Step 2: Calculate the value of preference share:
The value of preference share is the sum of its face value and the unpaid dividend arrear.

Value of preference share = Face value + Dividend arrear
Value of preference share = ₹100 + ₹800,000
Value of preference share = ₹800,100

Therefore, the value of the preference share is ₹800,100.

Explanation:
The value of a preference share is determined by its face value and any unpaid dividend arrear. The face value is the nominal value of the share, which in this case is ₹100. The dividend arrear is the unpaid dividend for previous years, which is calculated by multiplying the preference share capital with the dividend arrear period.

In this case, the preference share capital is ₹400,000 and the dividend arrear period is 2 years. Therefore, the dividend arrear is ₹800,000.

To calculate the value of the preference share, we add the face value and the dividend arrear. In this case, the value of the preference share is ₹800,100.

The value of preference share is important for investors as it determines the amount they will receive when the preference shares are redeemed or sold in the market. It also indicates the financial health of the company and the potential return on investment for the shareholders.