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Question
Statement I: Issue of Debentures will result in inflow of cash.
Statement II: Issue of Debentures to the vendors for purchase of machinery will result in outflow of cash.
Choose the correct option from the following:
Options
Both statements are correct.
Both statements are incorrect.
Statement I is correct, and Statement II is incorrect.
Statement I is incorrect, and Statement II is correct.
MCQ
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Solution
Statement I is correct, and Statement II is incorrect.
Explanation:
Statement I is correct because issuing debentures to the public for cash brings money into the company, resulting in a cash inflow under Financing Activities. On the other hand, Statement II is incorrect because issuing debentures directly to a vendor to settle a machinery purchase is a non-cash transaction. Since no actual cash or bank balance enters or leaves the business during this specific exchange, it results in no flow of cash at all, rather than an outflow.
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