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CMA Intermediate · Corporate Accounting and Auditing · Cash Flow Statement

Under Ind AS 7, which description correctly defines 'operating activities' of an entity?

Operating activities are the principal revenue-producing activities of the entity together with other activities that are neither investing nor financing activities. Hence it is a residual-inclusive definition, not limited to cash from sales, and it excludes asset acquisition and disposal (investing) and equity or borrowing changes (financing).

  1. AActivities that result in changes in the size and composition of the contributed equity and borrowings of the entity
  2. BThe principal revenue-producing activities of the entity and other activities that are not investing or financing activitiesCorrect
  3. CThe acquisition and disposal of long-term assets and other investments not included in cash equivalents
  4. DOnly those activities that generate cash receipts from the sale of goods and rendering of services

Explanation

Ind AS 7 defines operating activities as the principal revenue-producing activities of the entity and other activities that are not investing or financing activities. The first option describes financing activities, the third describes investing activities, and the last is too narrow because it omits other non-investing, non-financing activities.

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