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    Question

    If the organization has redeemed its preference shares,

    then this transaction will be reflected in the Cash Flow Statement under which of the activities?
    A Operating Activity Correct Answer Incorrect Answer
    B Financing Activity Correct Answer Incorrect Answer
    C Investing Activity Correct Answer Incorrect Answer
    D It won’t be reflected in Cash Flow Statement Correct Answer Incorrect Answer

    Solution

    Cash flow from company’s capital structure i.e. changes in equity, debt, loans or dividends are accounted for in cash from financing. Changes in cash from financing are “cash in” when capital is raised, and they are “cash out” when dividends are paid. Thus, if a company issues a bond to the public, the company receives cash financing; however, when interest is paid to bondholders, the company is reducing its cash.

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