Question

Statement I: Issue of Debentures will result in inflow of cash.
Statement II: Issue of Debentures to the vendors for purchase of machinery will result in outflow of cash.
Choose the correct option from the following:

Hint:

In financial statements, inflows from financing activities arise from issuing debt or equity, while outflows from investing activities occur when purchasing assets.

Answer 1

- Statement I is correct: Issuing debentures generally generates cash inflow, as it signifies borrowing funds from investors.
- Statement II is incorrect: Issuing debentures to acquire machinery does not lead to a cash outflow. Instead, it creates a financing inflow from the debentures, and the machinery acquisition constitutes an outflow from investing activities.