Hero Ltd, started a new venture of making casual shirts. The directors decided to issue 5,000,00 shares of Rs. 10 each at Rs. 12 each. The following assets were purchased by the company
A building of Rs. 10 lakhs
Furniture of Rs. 7 lakhs
Machinery of Rs. 2 lakhs
The company purchased cloth of Rs. 20 lakhs and paid wages Rs. 5,00,000 to the workers. The Directors also decided to buy 10,000 shares of TATA Ltd. of Rs. 10 each and at the end of the year Tata Ltd. Paid Rs. 10,000 as dividend
Amount of Security Premium Reserve will be shown in
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Financing activity
The securities premium is part of the cash Hero Ltd. receives when it issues its shares at Rs. 12 each. The whole amount received on the issue, face value and premium together, is a cash proceed from issuing shares, so it is shown as an inflow from financing activities.
Option (1) Operating activity — Incorrect. Raising capital is not part of the company’s main business of making and selling shirts.
Option (2) Investing activity — Incorrect. Investing activities are the buying and selling of long-term assets and investments, not the raising of capital.
Option (4) Cash and Cash equivalent — Incorrect. Cash and cash equivalents are what the activities change; the premium is a source of cash shown under an activity.
NCERT (2026-27 edition):
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