Question

Statement I: ‘Issue of fully paid bonus shares out of Securities Premium Account’ will result in inflow of cash.
Statement II: ‘Cash withdrawn from bank’ will result in inflow of cash.
In the context of the above two statements, choose the correct option:

• A. Both statement I and statement II are correct
• B. Both statement I and statement II are incorrect
• C. Statement I is correct and statement II is incorrect
• D. Statement I is incorrect and statement II is correct

Hint:

The issue of bonus shares does not result in cash inflow as it involves capitalizing reserves. Similarly, withdrawing cash from a bank results in a shift of funds, not an inflow.

Answer 1

The Correct Option is B

Statement I is incorrect: Issuing fully paid bonus shares does not generate cash inflow, as these shares are distributed from the Securities Premium Account, constituting a non-cash transaction. Statement II is incorrect: Withdrawing cash from a bank does not create a cash inflow; it simply reallocates existing cash from one form (bank balance) to another (cash on hand) without any net increase.