Question

If 12% Preference share capital ₹ 20,00,000 were redeemed at a premium of 5%, while preparing Cash Flow Statement, Cash Flow will be ______.

Options

• Cash used is Financing Activities ₹ 22,40,000

• Cash used is Financing Activities ₹ 23,40,000

• Cash used is Financing Activities ₹ 20,00,000

• Cash used is Financing Activities ₹ 21,00,000

Answer 1

If 12% Preference share capital ₹ 20,00,000 were redeemed at a premium of 5%, while preparing Cash Flow Statement, Cash Flow will be cash used is Financing Activities ₹ 21,00,000.

Explanation:

Issue and Redemption of Shares is a financing activity. Redemption of shares is outflow of cash from financing activity.

Cash used in Financing Activity = 12% Preference Share Capital + Premium on Redemption of Debentures

= ₹ 20,00,000 + (5% + ₹ 20,00,000)

= ₹ 20,00,000 + ₹ 1,00,000

= ₹ 21,00,000