Question

While preparing Cash Flow Statement, the accountant of a financing company showed 'Dividend Received Rs 50,000 on investments' as an investing activity. Was he correct in doing so? Give reason.

Answer 1

The accountant was wrong in his approach of showing 'Interest received on Loan' under 'Financing Activity'. Interest received on loan by a financing company is cash inflow from operating activities. So it is to be categorised under 'Cash Flow from Operating Activities'.