Question

Statement - I: In case of non-financial enterprises, receipts of interest and dividend are classified as financing activities.

Statement - II: In case of financial enterprises, receipts of interest and dividend are classified as investing activities.

Choose the correct option from the following:

Options

• Both the Statements are true.

• Statement I is true, and Statement II is false.

• Statement I is false, and Statement II is true.

• Both the statements are false.

Answer 1

Both the Statements are false.

Explanation:

Both statements are incorrect because they misclassify the nature of the cash flows. In Statement I, for a non-financial enterprise (like a manufacturing company), receiving interest or dividends is a return on an investment, so it is classified as an Investing Activity, not a financing one. In Statement II, for a financial enterprise (like a bank), earning interest and dividends is part of their main business operations, meaning these receipts are classified as Operating Activities, not investing activities.