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Question
From the following extracts of a company’s Balance Sheets and the additional information, you are required to calculate Cash from Financing Activities for the year ending 31st March, 2021.
| Particulars | 31.3.2021 (₹) | 31.3.2020 (₹) |
| Equity Share Capital | 9,00,000 | 7,00,000 |
| 10% Preference Share Capital | 3,00,000 | 5,00,000 |
| Securities Premium Reserve | 30,000 | 5,000 |
| 12% Debentures | 4,00,000 | 3,00,000 |
| Cash Credit | 12,000 | 10,000 |
Additional information:
(1) During the year 2020-21:
- Dividend proposed on Equity Shares in 2019-20 of ₹ 65,000 was declared and paid.
- Debentures were issued on 1st July, 2020, at a discount of 10%.
- Interest on cash credit of ₹ 500 was paid.
- Underwriting commission of ₹ 25,000 was paid to the underwriters.
- The Equity shares were issued at a premium.
(2) The 10% Preference Shares were redeemed on 31st March, 2021.
Hints:
(1)
| Dr. | SECURITIES PREMIUM ACCOUNT | Cr. | |
| Particulars | Amount (₹) |
Particulars | Amount (₹) |
| To Discount on Issue of Debentures A/c (Written off) | 10,000 | By Balance b/d | 5,000 |
| To Underwriting Commission | 25,000 | By Share Application & Allotment A/c (Balancing Figure, being premium received on issue of equity shares) |
60,000 |
| To Balance c/d | 30,000 | ||
| 65,000 | 65,000 | ||
(2) Since Company has paid dividend on equity shares, it must have paid dividend on preference shares also.
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Solution
| Cash flow from financing activities for the year ending 31st March, 2021 |
||
| Particulars | Amount (₹) |
Amount (₹) |
| Proceeds from the issue of equity shares | 2,00,000 | |
| Redemption of preference shares | (2,00,000) | |
| - | ||
| Add: | ||
| Issue of Debentures | 90,000 | |
| Cash credit taken | 2,000 | |
| Securities premium received (Refer to working notes) | 60,000 | 1,52,000 |
| Less: | ||
| Interest paid on cash credit | (500) | |
| Payment of underwriting commission | (25,000) | |
| Dividend paid on equity shares | (65,000) | |
| Dividend paid on preference shares | (50,000) | |
| Interest paid on Debentures (Refer to working notes) | (45,000) | (1,85,500) |
| Net Cash Flow from Financing Activities | (33,500) | |
Working Notes:
(1) Calculation of Interest on Debentures:
`[3,00,000 xx 12/100] + [1,00,000 xx 12/100 xx 9/12]`
= ₹ 36,000 + ₹ 9,000
= ₹ 45,000
(2) Dividend on Preference Shares = 10% × ₹ 5,00,000
= ₹ 50,000
(3) Securities Premium Received = ₹ 30,000 + ₹ 10,000 + ₹ 25,000 − ₹ 5,000
= ₹ 60,000
(4) Note that the Discount on the issue of debentures of ₹ 10,000 and the underwriting commission of ₹ 25,000 have been written off from the Securities Premium Reserve as per the provision of the Companies Act.
