A company issued shares of ₹3,00,000 to the public. How it will be shown under the Cash Flow Statement?

Inflow of ₹3,00,000, under Financing Activity

The correct answer is option 3- Inflow of ₹3,00,000, under Financing Activity.

Issuing shares is shown as inflow of ₹3,00,000, under Financing Activity in the cash flow statement.

Financing activities relate to long-term funds or capital of an enterprise. As per AS-3, financing activities are activities that result in changes in the size and composition of the owners’ capital (including preference share capital in case of a company) and borrowings of the enterprise. Separate disclosure of cash flows arising from financing activities is important because it is useful in predicting claims on future cash flows by providers of funds (both capital and borrowings) to the enterprise. Examples of financing activities are:

Cash Inflows from financing activities:

• Cash proceeds from issuing shares (equity or/and preference).
• Cash proceeds from issuing debentures, loans, bonds and other short/ long-term borrowings.

Cash Outflows from financing activities:

• Cash repayments of amounts borrowed.
• Interest paid on debentures and long-term loans and advance.
• Dividends paid on equity and preference capital.