## Securities Premium and Preference Share Redemption

### Securities Premium — Financing Activity

When equity shares are issued at a premium and cash is received:

Total cash inflow = Face value + Securities premium
Both are classified as Financing Activity (inflow)
Securities premium is NOT separated out; the gross receipt is one line

Ledger check to find cash received:

Dr		Cr
Closing balance	Given	Opening balance	Given
		Cash received on issue (By CIB)	← find this

Cash received = Closing SP − Opening SP (if no other movements)

### Preference Share Redemption — Financing Activity

Item	Treatment
Face value of preference shares redeemed in cash	Financing outflow
Premium on redemption paid in cash	Financing outflow
Premium on redemption charged to Securities Premium A/c	Non-cash — excluded

### Shares or Debentures Issued for Non-Cash Consideration

If shares (or debentures) are issued in exchange for an asset (e.g., machinery or building):

Zero cash flow — excluded from the body of the CFS
Must be disclosed in a supplementary schedule of significant non-cash transactions
The related asset acquisition also does NOT appear under Investing Activities

### Dividend Received Classification

Under AS 3, for non-financial entities, dividend received is an Investing Activity. This is distinct from dividend paid, which is Financing.

Worked example

### Example 1

Financing Activities section — Securities Premium illustration:

```

Cash Flow from Financing Activities:

Issue of equity shares (face + premium) 10,00,000 inflow

Redemption of preference shares (1,00,000) outflow

Net CF from Financing Activities 9,50,000

```

Note: Premium received on issue ₹50,000 is embedded in the ₹10,00,000 figure, not shown separately.

### Example 2

Non-cash share issue — excluded:

Company issues equity shares (FV ₹60,000) in exchange for a machine.

Entry: Dr Machine ₹60,000 | Cr ESC ₹60,000

→ This does NOT appear in Financing Activities (no cash for shares) and does NOT appear in Investing Activities (no cash for machine).

→ Disclose in supplementary note: 'Machinery acquired by issue of equity shares ₹60,000'.

### Example 3

Dividend received:

Dividend received on long-term investments = ₹50,000

→ Investing Activity inflow: ₹50,000

→ Not to be mixed with Operating Activities

⚠️ Common exam mistakes

Including a share issue against non-cash consideration (machinery) in Financing inflows — only cash receipts from share issues appear in CFS
Treating dividend received as an operating activity — under AS 3 it is Investing for non-financial entities
Separating securities premium as a standalone line when computing share issue proceeds — show total cash received (face + premium) as one line
Including premium on redemption as a CFS outflow when it was charged to Securities Premium account (non-cash debit to SP, not to cash)

Bare-Act text Para 33 · AS 3 — Cash Flow Statements · click to expand

Dividends received are generally classified as investing cash flows because they are returns on investments. Cash flows arising from transactions in a foreign currency should be recorded in an enterprise's reporting currency.

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Securities Premium, Preference Share Redemption, and Non-Cash Share Issues in CFS

Worked example

⚠️ Common exam mistakes