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CA Intermediate · Advanced Accounting · AS 3 Cash Flow Statement

Sundaram Textiles Ltd, a manufacturing company, received Rs 4,00,000 as dividend from its investment in shares of another company and paid Rs 1,50,000 as interest on its term loan during the year. The company is not a financial enterprise. As per AS 3, how should these two items be classified in its cash flow statement?

Dividend received is shown under investing activities and interest paid under financing activities. For an enterprise that is not a financial enterprise, AS 3 treats returns on investments as investing flows and the cost of borrowed funds as a financing flow, whereas financial enterprises show them in operating activities.

  1. ADividend received in investing activities; interest paid in financing activitiesCorrect
  2. BDividend received in operating activities; interest paid in investing activities
  3. CDividend received in financing activities; interest paid in operating activities
  4. DBoth dividend received and interest paid in operating activities

Explanation

For a non-financial enterprise, AS 3 treats interest and dividends received as investing cash flows, and interest paid on borrowings as a financing cash flow. Hence dividend received is investing and interest paid is financing. Showing both in operating activities applies the treatment used for financial enterprises, so it is wrong here.

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