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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 48,000 as interest on this deposit. Sundaram Textiles is a manufacturing company (not a financial enterprise). As per AS 3, where should this interest received be classified in the cash flow statement?

For a non-financial company such as Sundaram Textiles, interest received on a fixed deposit is shown under investing activities, because AS 3 treats interest and dividends received as returns on investments. Only financial enterprises classify such receipts under operating activities.

  1. ACash flow from operating activities
  2. BCash flow from investing activitiesCorrect
  3. CCash flow from financing activities
  4. DIt is excluded from the cash flow statement

Explanation

Under AS 3, interest and dividends received by a non-financial enterprise are treated as cash flows from investing activities, since they are returns on investments. Operating classification applies to financial enterprises. Financing is for borrowing and owner capital flows.

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