Skip to content

CA Intermediate · Advanced Accounting · AS 3 Cash Flow Statement

Sundaram Textiles Ltd, a manufacturing company, received Rs 4,00,000 as insurance claim for stock destroyed by fire. The company also paid Rs 2,50,000 as dividend to its equity shareholders and received Rs 1,20,000 as interest on loans advanced to a supplier. Under AS 3, how should the dividend paid be classified in the cash flow statement of this non-financial company?

Dividend paid by a non-financial company is shown under financing activities in the cash flow statement under AS 3. It is a payment to owners that changes the size and composition of owners' equity, so it is neither an operating nor an investing item.

  1. AOperating activities
  2. BInvesting activities
  3. CFinancing activitiesCorrect
  4. DExcluded from the cash flow statement as it is a non-cash item

Explanation

Dividend paid to shareholders is a cash outflow arising from changes in owners' equity and is a financing activity for a non-financial enterprise. It is a cash payment, so it cannot be excluded. Classifying it as operating or investing would be wrong because it is not a revenue-producing activity or an acquisition of assets.

Did you get it right without looking?

One question tells you little. A timed set on AS 3 Cash Flow Statement shows your real accuracy, how long you take and where you lose marks.

Practise AS 3 Cash Flow StatementFree diagnostic mock

More AS 3 Cash Flow Statement questions