Increase in Bank overdraft of ₹50,000 will be shown as :

Inflow of finance activities

The correct answer is Option (1) - Inflow of finance activities.

Increase in Bank overdraft of ₹50,000 will be shown as Inflow of finance activities.

A bank overdraft is a financing activity in the cash flow statement. An increase in this will make inflow of cash to the company. So, increase in bank overdraft by ₹50,000 make cash inflow of ₹50,000 in financing activity.

Financing activities relate to long-term funds or capital of an enterprise, e.g., cash proceeds from 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.