Which option correctly states the formula for calculating share-issue proceeds for the cash flow statement?

Which option correctly states the formula for calculating share-issue proceeds for the cash flow statement?

• 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 for issuing new shares, which equals the increase in ordinary share capital plus the increase in share premium between two reporting dates. In other words, the cash inflow is the difference between year 2 and year 1 for both components combined: ordinary shares plus share premium year 2 minus ordinary shares plus share premium year 1. This captures all the cash investors paid, not just the nominal value of the shares. The other options don’t fit as well. A description like net proceeds from a share issue isn’t a formula for calculating the amount. The overall cash inflows from financing activities include more than just share issues, so using that broader category isn’t the specific formula. And using only par value ignores any premium received, which is part of the actual cash raised from the issue.

Proceeds from a share issue in the cash flow statement come from the cash received for issuing new shares, which equals the increase in ordinary share capital plus the increase in share premium between two reporting dates. In other words, the cash inflow is the difference between year 2 and year 1 for both components combined: ordinary shares plus share premium year 2 minus ordinary shares plus share premium year 1. This captures all the cash investors paid, not just the nominal value of the shares.

The other options don’t fit as well. A description like net proceeds from a share issue isn’t a formula for calculating the amount. The overall cash inflows from financing activities include more than just share issues, so using that broader category isn’t the specific formula. And using only par value ignores any premium received, which is part of the actual cash raised from the issue.