A company issued shares of ₹ 3,00,000 to the public. How it will be shown under the Cash Flow Statement.
A company issued shares of ₹ 3,00,000 to the public. How it will be shown under the Cash Flow Statement.
Solution
When a company issues shares to the public for ₹3,00,000, it receives cash from the shareholders in exchange for ownership. This represents a cash inflow for the company.
The classification of this transaction in the Cash Flow Statement depends on its nature:
Cash Flow from Financing Activities includes all transactions that affect the capital structure of the company - changes in equity capital and borrowings. Issue of shares directly increases the equity capital, making it a financing activity.
Therefore, when shares worth ₹3,00,000 are issued to the public, it will be shown as:
Inflow of ₹3,00,000 under Cash Flow from Financing Activities
The logic is simple: Company issued shares → Company received cash → Cash Inflow. Since it relates to raising capital from owners, it falls under Financing Activities (not Investing Activities, which deals with purchase/sale of long-term assets).