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CA Intermediate · Advanced Accounting · AS 3 Cash Flow Statement

Sundaram Textiles Ltd, a manufacturing company, prepares its cash flow statement under AS 3. During the year it (i) received Rs 4,00,000 as interest on fixed deposits held as treasury investments, (ii) paid Rs 1,50,000 as interest on its term loan, and (iii) received Rs 60,000 as dividend from shares of another company held as investment. Under AS 3 as applicable to a non-financial enterprise, how are these items classified?

For a non-financial company, AS 3 classifies interest received and dividends received as investing activities, while interest paid on borrowings is a financing activity. Operating classification is reserved for financial enterprises such as banks and NBFCs, so treating all items as operating is wrong.

  1. AAll three under operating activities
  2. BInterest received and dividend received under investing activities; interest paid under financing activitiesCorrect
  3. CInterest received under operating, interest paid under financing, dividend received under investing
  4. DInterest and dividend received under financing activities; interest paid under operating activities

Explanation

For an enterprise other than a financial enterprise, AS 3 treats interest and dividends received as investing cash flows and interest paid as a financing cash flow. Option A applies the rule meant for financial enterprises. The other options mix up the heads.

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