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CA Intermediate · Advanced Accounting · AS 3 Cash Flow Statement

Sundaram Textiles Ltd. holds a fixed deposit with a bank that it treats as an investment. During the year it received interest of Rs 48,000 on this deposit. Sundaram Textiles is a non-financial company. As per AS 3, in which section of the cash flow statement should the interest received be shown?

Interest received on investments by a non-financial company is shown under investing activities in the cash flow statement. AS 3 treats interest and dividends received as returns on investments, so they are not operating items unless the enterprise is a financial enterprise such as a bank.

  1. AOperating activities, since interest is part of profit
  2. BInvesting activitiesCorrect
  3. CFinancing activities
  4. DIt is not shown, as it is a non-cash item

Explanation

Under AS 3, for enterprises other than financial enterprises, interest and dividends received on investments are classified as cash flows from investing activities. Interest paid, by contrast, is a financing item. Option A applies only to financial enterprises.

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