Treatment of Share Issue Expenses in Cash Flow Statement
Confused, What is the accounting treatment of Share Issue Expenses in Cash Flow Statement.
Share Issue Expenses are shown as outflow under Financing Activity, it being related to Share Capital.
It Should be noted that Share Issue Expenses are written off in the Financial Statements from Securities Premium Reserve, if it exists or from Statement of Profit and Loss.
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When Securities Premium Reserve is not given in Question
In this case, Share issue expenses is added to Net Profit before tax and Extraordinary Items to calculate Cash flow from Operting activities.
Further, it is subtracted as outflow under Financing Activity.
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When Securities Premium Reserve is given in Question
Let’s understand in two cases.
Case – I
When securities Premium Reserve is less than the share issue expenses.
Let’s say, Share issue Expenses are ₹ 5000 and Securities Premium Reserve is ₹ 3000.
In this case, Share issue expenses up to ₹ 3,000 is written off against Securities Premium Reserve. The remaining ₹ 2000 would be written off from the Profit and Loss Account.
In this case, Share Issue Expenses ₹ 2,000 is added to Net Profit Before Tax and Extraordinary Items to calculate Cash flow from operating activities.
Securities Premium Reserve ₹ 3,000 is added and Share issue expenses of ₹ 5000 is subtracted from financing activities.
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Case – 2
When securities Premium Reserve is more than the share issue expenses.
Let’s say, Share issue Expenses are ₹ 3000 and Securities Premium Reserve ₹ 7000.
In this case, the whole amount of Share issue expenses ₹ 3000 is written off against Securities Premium Reserve.
In this case, no amount of Share issue expenses are added to Net Profit Before Tax and Extraordinary Items to calculate Cash flow from operating activities.
Securities Premium Reserve ₹ 7000 is added and Share issue expenses ₹ 3000 is subtracted from Financing activities
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