The following extracts of the Balance Sheet is taken from the financial statements of PQR limited.
| Particulars | 2021 - 22 | 2020 -21 |
| Equities and Liabilities | ||
| Shareholders Funds | ||
| (a) Equity share capital | 20,00,000 | 20,00,000 |
| (b) Preference Share capital (8%) | 7,50,000 | 5,00,000 |
| Reserves and Surplus | ||
| Statement of Profit & Loss | 4,50,000 | 3,00,000 |
An interim dividend of 10% was declared on Equity Share. Preference Shares were issued on 31st March 2022. Net cash flows during the year from Financing Activities will be:
Answer & explanation
Correct answer: option 3
The correct answer is option 3- ₹10,000 inflow.
Preference shares issued during the year = 7,50,000 - 5,00,000
= 2,50,000 (inflow)
Interim Dividend on equity Shares = 10/100 x 20,00,000
= 2,00,000 (Outflow)
Dividend on 8 % Preference Share = 8/100 x 5,00,000
= 40,000 (Outflow)
Net Inflow = 2,50,000- 2,00,000- 40,000
= 10,000 inflow
Note 1: Preference shareholders have a right of preferential dividend on equity shares. In this question since interim dividend is paid on equity shares, it has to be assumed that preference shareholders were also paid paid dividend before interim dividend was paid.
Note 2: The Preference Shares of Rs 2.5 lakhs were issued on 31 March 2022 (last day of financial year) and hence they will not be eligible for dividend for FY 2021-22.