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Question
Classify the following transactions as Operating Activities for a financial company and a non-financial company:
(a) Purchase of Shares on a Stock Exchange.
(b) Dividend received on Shares.
(c) Dividend paid on Shares.
(d) Loans given.
(e) Loans taken.
(f) Interest paid on borrowings.
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Solution
| OPERATING ACTIVITY | |
| Financial Company | Non-Financial Company |
| a. Purchase of Shares on a Stock Exchange | - |
| b. Dividend received on shares | |
| d. Loans given | |
| e. Loans taken | |
| f. Interest paid on borrowings | |
A financial company deals with securities like shares, bonds, debentures, etc on a regular basis. These securities form part of their stock and hence purchase and sale of these securities will be categorised under Operating Activity. But, Dividend paid by them will be the part of Financing Activities.
However, for a non-financial company issue of shares, debentures, etc form part of financing activities as such issue will increase the capital employed in the business.
