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
Proceeds from issue of preference shares = ₹7,50,000 − ₹5,00,000 = ₹2,50,000 (inflow)
Interim dividend on equity shares = ₹20,00,000 × 10/100 = ₹2,00,000 (outflow)
Dividend on the old 8% preference shares = ₹5,00,000 × 8/100 = ₹40,000 (outflow)
The new preference shares were issued only on 31st March 2022, so no dividend is due on them. Preference dividend must be paid before any equity dividend, so it has been paid when the equity dividend is declared.
Net cash from financing activities = ₹2,50,000 − ₹2,00,000 − ₹40,000 = ₹10,000 inflow