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

Cash Flow from Financing Activities details transactions concerning a company's equity and borrowings. It comprises the following:

1. Share Buybacks: This represents a cash expenditure when a company repurchases its own shares.
2. Bonus Share Issuance: This transaction has no cash flow impact as bonus shares are issued from retained earnings or reserves.
3. Proposed Dividends: Proposed dividends signify a future payment obligation. For cash flow calculation, the current year's proposed dividend is treated as an outflow. The prior year's proposed dividend is excluded from the current year's cash flow as it was already recorded in the preceding period.

Step 1: Analyze Cash Flow Components

• Share Buybacks: ₹1,00,000 (Outflow)
• Bonus Share Issuance: ₹0 (No cash flow impact)
• Current Year Proposed Dividend: ₹40,000 (Outflow)
• Previous Year Proposed Dividend: ₹0 (Not included in the current year's calculation)

Step 2: Calculate Total Cash Outflow from Financing Activities

The total cash outflow is derived from the sum of share buybacks and proposed dividends:

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

However, the net impact of dividends must consider the difference between current and previous year's proposed dividends:

Net dividend outflow = ₹40,000 - ₹10,000 = ₹30,000

Therefore, the net cash flow outflow is:

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

The definitive result is (C): Outflow of ₹ 1,10,000