A company redeemed ₹5,00,000, 9% debentures at 10% premium. What will be the amount of 'Cash flows and from which activity it is generated?

₹5,50,000 and financing activity

The correct answer is option 2- ₹5,50,000 and financing activity.

Redemption of debenture is a financing activity as it affects the capital structure of the company.

Debenture redeemed = ₹5,00,000
Premium on debentures = 5,00,000 X 10/100
                                       = ₹50,000
Total amount of cash outflow from financing activity = 5,00,000 + 50,000
                                                                                = ₹5,50,000