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CMA Intermediate · Financial Management and Business Data Analytics · Cash Flow Statement - Preparation and Analysis

Sundaram Textiles Ltd had 10% debentures of Rs 8,00,000 at the start of the year and Rs 6,00,000 at the end. During the year it issued fresh debentures of Rs 1,50,000 at par. Interest of Rs 70,000 was paid. Net cash flow from financing activities on account of debentures, including interest paid (interest classified as financing), is:

Net financing outflow is Rs 2,70,000. Debentures redeemed were 8,00,000 plus 1,50,000 issued less 6,00,000 closing, i.e. 3,50,000. Net of the fresh issue of 1,50,000 this is an outflow of 2,00,000, and interest paid of 70,000 adds to it.

  1. AOutflow Rs 1,20,000
  2. BOutflow Rs 70,000
  3. COutflow Rs 3,20,000Correct
  4. DOutflow Rs 2,70,000

Explanation

Redemption = 8,00,000 + 1,50,000 - 6,00,000 = Rs 3,50,000. Net debenture flow = 1,50,000 - 3,50,000 = outflow 2,00,000. Adding interest paid of 70,000 gives outflow of Rs 2,70,000. Hence the key is Rs 2,70,000.

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