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Statement II: 'Cash withdrawn from bank' will result in inflow of cash.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:

Bonus shares do not impact cash flow as they are an internal transfer. Similarly, withdrawing cash from a bank is a movement within cash accounts, not an inflow or outflow.

Answer 1

The Correct Option is B

Statement I is incorrect because issuing bonus shares from securities premium does not result in inflow of cash, as it involves a transfer from one account (securities premium) to another (share capital). Statement II is incorrect because cash withdrawn from a bank does not result in inflow of cash; it simply transfers cash from the bank to the business and does not affect the total cash position.