Question

While preparing 'Cash Flow Statement', the accountant of 'Jain Limited', a financing company, showed dividend received on investments as investing activity. Was he correct in doing so? Give reason.

Answer 1

The accountant of 'Jain Limited' was not correct in recording dividend received on investments as cash flow from investing activity. 'Jain Limited' is a financing company, so the receipt of dividend should be regarded as the cash inflow from operating activities.