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CS Executive · Corporate Accounting and Financial Management · Cash Flows

Under AS 3 Cash Flow Statements, which of the following is a financing activity of a company?

Proceeds from issue of preference share capital is a financing activity, because AS 3 defines financing activities as those changing the size and composition of owners' capital, including preference share capital, and borrowings. The other items relate to investing or operating activities.

  1. APurchase of plant and machinery for cash
  2. BProceeds from issue of preference share capitalCorrect
  3. CReceipt of dividend on shares held in another company as an investment
  4. DPayment to trade creditors for raw materials

Explanation

AS 3 defines financing activities as activities that change the size and composition of owners' capital (including preference share capital in the case of a company) and borrowings. Issue of preference shares therefore falls under financing. Purchase of machinery and dividend received on investments are investing items, and payment to creditors is operating.

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