Question

Assertion (A): Dividend paid is always shown as Financing Activity for all enterprises.

Reason (R): Cash payment of income tax is usually shown as Operating Activity.

In the context of the above two statements, which of the following is correct?

Options

• Assertion (A) is correct, but Reason (R) is wrong.

• Both Assertion (A) and Reason (R) are correct, but Reason (R) is not the correct explanation of Assertion (A).

• Both Assertion (A) and Reason (R) are incorrect.

• Both Assertion (A) and Reason (R) are correct, and Reason (R) is correct explanation of Assertion (A).

Answer 1

Assertion (A) is correct, but Reason (R) is wrong.

Explanation:

For all corporate enterprises, dividend paid represents a cost of obtaining capital and is therefore always classified as a Financing Activity under standard accounting practices (like AS 3 and Ind AS 7). Conversely, the Reason statement is incorrect because the cash payment of income tax is actually operating by default, unless it can be specifically identified with financing or investing activities, making the absolute generalization in standard textbook scenarios wrong since tax is classified based on the nature of the underlying transaction rather than being predefined.