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Question
During the year ended 31st March, 2025, H.P. Ltd. paid an interim dividend of ₹ 50,00,000.
From the following, choose the correct option for the purpose of preparing ‘Cash Flow Statement’:
Options
₹ 50,00,000 paid as interim dividend during the year will be shown as outflow of cash under financing activities and added back to net profit to calculate cash flows from operating activities.
₹ 50,00,000 paid as interim dividend during the year will be shown as outflow of cash under financing activities and deducted from net profit to calculate cash flows from operating activities.
₹ 50,00,000 paid as interim dividend during the year will be shown as cash outflow from financing activities only.
₹ 50,00,000 paid as interim dividend during the year will be added back to net profit to calculate cash flows from operating activities only.
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Solution
₹ 50,00,000 paid as interim dividend during the year will be shown as cash outflow from financing activities only.
Explanation:
An interim dividend paid is classified as a cash outflow from financing activities in the Cash Flow Statement under AS-3.
Because the dividend was paid during the year, there is no need to modify net profit when computing cash flow from operating activities (using the indirect method), because it is an appropriation of profit that is not charged to the Statement of Profit and Loss.
