There are two statements marked as Assertion (A) and Reason (R). Mark your answer as per the options given below.

Assertion (A):  Proceeds from the issue of shares and debentures are recorded in the financing activity of the cash flow statement.
Reason (R):  The issue of shares and debentures is the cash inflow that is made to finance the company.

Both (A) and (R) are true, and (R) is the correct explanation of (A).

The correct answer is option 1- Both Assertion (A) and Reason (R) are correct, and Reason (R) is the correct explanation for Assertion (A).

Assertion (A) states that proceeds from the issue of shares and debentures are recorded in the financing activity of the cash flow statement. This is correct because the cash flows related to the issuance of shares and debentures represent financing activities. These activities involve raising capital (funds) for the company through equity (shares) or debt (debentures), which affects the company's long-term liabilities and equity.

Reason (R) explains Assertion (A), stating that the issue of shares and debentures constitutes a cash inflow that is used to finance the operations or expansions of the company. This is also correct because when a company issues shares or debentures, it receives cash from investors or creditors, which is then used to fund various activities such as capital expenditures, repayment of debt, or general operational needs.

* Financing activities relate to long-term funds or capital of an enterprise, e.g., cash proceeds from the issue of equity shares, debentures, raising long-term bank loans, repayment of bank loan, etc. 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.
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.