Which formula correctly calculates the proceeds from a share issue for the statement of cash flows?

Which formula correctly calculates the proceeds from a share issue for the statement of cash flows?

• A. ordinary shares + share premium year 2 - ordinary shares + share premium year 1
• B. net proceeds from share issue
• C. cash inflows from financing activities
• D. par value only

Answer: (A)

Proceeds from a share issue in the cash flow statement come from the cash received when ordinary shares are issued, and that amount is tied to the changes in the equity accounts that reflect the issue: ordinary share capital (at par) and share premium. So to get the proceeds, you look at how much these two accounts increase overall between two reporting dates. In other words, take the sum of ordinary shares and share premium at the end of the period, then subtract the sum at the beginning; this difference equals the cash received from the share issue. That’s why the correct approach is the change in ordinary share capital plus share premium from year to year. The other options don’t fit because they either describe the concept in vague terms (net proceeds), refer to a broader category (cash inflows from financing activities), or omit the premium component (par value only).

Proceeds from a share issue in the cash flow statement come from the cash received when ordinary shares are issued, and that amount is tied to the changes in the equity accounts that reflect the issue: ordinary share capital (at par) and share premium. So to get the proceeds, you look at how much these two accounts increase overall between two reporting dates. In other words, take the sum of ordinary shares and share premium at the end of the period, then subtract the sum at the beginning; this difference equals the cash received from the share issue.

That’s why the correct approach is the change in ordinary share capital plus share premium from year to year. The other options don’t fit because they either describe the concept in vague terms (net proceeds), refer to a broader category (cash inflows from financing activities), or omit the premium component (par value only).