Question

Calculate Cash Flow from Financing Activities from the following information:
• Buy back of own shares: 1,00,000
• Issue of bonus shares: 50,000
• Current Year Proposed Dividend: 40,000
• Previous Year Proposed Dividend: 10,000

• A. Outflow of 40,000
• B. Outflow of 90,000
• C. Outflow of 1,10,000
• D. Outflow of 1,00,000

Answer 1

The Correct Option is C

The Cash Flow from Financing Activities includes transactions related to the company's own equity and borrowing activities. Specifically, it includes the following:

1. Buyback of own shares: This is a cash outflow as the company is using cash to buy back its own shares from the market.
2. Issue of bonus shares: This does not involve any cash flow, as bonus shares are issued from the company's retained earnings or reserves.
3. Proposed Dividend: Proposed dividends represent a commitment to pay in the future. However, for calculating cash flow, we consider the current year's proposed dividend as the outflow. The previous year's proposed dividend is not considered in the current year's cash flow since it was already accounted for in the previous year.

Step 1: Analyze the cash flow components

• Buyback of own shares = ₹1,00,000 (outflow)
• Issue of bonus shares = ₹0 (no cash flow effect)
• Current Year Proposed Dividend = ₹40,000 (outflow)
• Previous Year Proposed Dividend = ₹0 (not included in the current year)

Step 2: Total cash outflow from financing activities

The total cash outflow is the sum of the buyback of shares and the proposed dividend:

Total cash outflow = ₹1,00,000 + ₹40,000 = ₹1,40,000

However, we need to account for the difference between the current year's proposed dividend and the previous year's proposed dividend:

Net outflow from dividends = ₹40,000 - ₹10,000 = ₹30,000

So, the net cash flow outflow is:

Total outflow = ₹1,00,000 + ₹30,000 = ₹1,10,000

Thus, the correct answer is (C): Outflow of ₹ 1,10,000