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CA Intermediate · Advanced Accounting · AS 3 Cash Flow Statement

Sundaram Textiles Ltd. holds a fixed deposit with a bank. During the year it received Rs 1,80,000 as interest on this deposit. Sundaram Textiles is a manufacturing company and not a financial enterprise. Under AS 3, where should this interest received be classified in the cash flow statement?

Interest received on a fixed deposit by a non-financial company such as Sundaram Textiles is classified under investing activities. AS 3 treats interest and dividends received by such enterprises as returns on investments, whereas operating classification applies only to financial enterprises.

  1. AOperating activities
  2. BInvesting activitiesCorrect
  3. CFinancing activities
  4. DIt is not shown in the cash flow statement

Explanation

For an enterprise other than a financial enterprise, AS 3 requires interest and dividends received to be classified under investing activities. Showing it under operating activities is the treatment only for financial enterprises, so that option is wrong. Cash flows from interest are never excluded from the statement.

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