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Cash flow problem

Gaurav Singh (student) (496 Points)

14 October 2011

Can anyone please explain me why premium on redemption of preference shares is not adjusted in operating activities in FM (May 2011) paper.......Please also explain the share premium A/c....

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(Guest)

probably in that question there was a share premium a/c in balance sheet,you see when we redeem pref share the journal is

pref share cap -dr

premium on redmn--dr

to pref. share holders

and to cancel out the premium we use the share premium a/c and pass the entry

share premium--dr

to premium on redmpn.

thats why premium was not adjusted on operating activity because it didnt have any relation with p/l

sprite ,clear hai!!!!!!!!!!!!!!!

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CA SUMiT PATWARi (Chartered Accountant) (1441 Points)
Replied 15 October 2011

It's the result of financing activity. So the outflow(face value + premium paid on redemption) would be shown under financing activity and not operating activity.

Arniv Sharda (CA Final) (3006 Points)
Replied 15 October 2011

Originally posted by : CA Sumit Patwari
	It's the result of financing activity. So the outflow(face value + premium paid on redemption) would be shown under financing activity and not operating activity.

agreed

cheers

CS RAJESH C.CHOUDHARY (ASSISTANT MANAGER) (14607 Points)
Replied 15 October 2011

Dear Gaurav,

Share premium is a result of Investing activity not operational activity and it is the reason

All the Best

nikhil ((CA Final) Article) (363 Points)
Replied 16 October 2011

premium on redemption will be shown in operating activity under adjustment of non-cash items and (fase value of share + premium )show in financing activity....