ACCA Advanced Financial Management (AFM) Practice Exam

Dividends can indeed be fixed or variable, which is why this statement is accurate. A fixed dividend is a set amount that a company decides to pay to shareholders, often seen in preferred shares. Imposing predictability, it allows shareholders to anticipate their returns. Conversely, variable dividends are more flexible and can be adjusted based on a company’s financial performance and earnings. This variability reflects the company's current profit levels, allowing management some discretion in determining what they can afford to distribute to shareholders without undermining their operational needs.

In contrast, dividends are not necessarily always paid in cash, which makes the first statement inaccurate; they can also be paid in the form of additional shares or property. The second statement about dividends being declared at any time by management overlooks the legal and financial obligations that a company must meet before declaring dividends. Finally, the declaration of dividends is not solely dependent on market conditions but is influenced by the company’s internal financial performance, strategic objectives, and cash flow needs, rendering the last option less comprehensive.