Question

Harsh Ltd., a financing company obtained loans and advances of ₹10,00,000 for the year @ 12% per annum. In which activity will it be included while preparing the cash flow statement?

Hint:

Loans obtained or repaid are classified under financing activities in the cash flow statement, as they reflect changes in the company’s financial structure.

Answer 1

Step 1: Understanding the Cash Flow Activities.
A cash flow statement is divided into three main sections:
1. Operating Activities: These include activities related to the core business operations of the company.
2. Investing Activities: These include cash transactions for the purchase or sale of physical and financial assets (e.g., machinery, investments, etc.).
3. Financing Activities: These include cash flows related to the company’s financing activities, such as obtaining loans, issuing shares, or repaying debt.
Step 2: Identifying the Relevant Activity.
In this case, Harsh Ltd. has obtained loans and advances, which involve cash inflows from external sources. These activities fall under Financing Activities in the cash flow statement.
Financing activities are concerned with the company’s capital structure and its management, including the raising of debt or equity. Thus, loans obtained are classified under this section.
Step 3: Conclusion.
The loans and advances obtained by Harsh Ltd. will be included in the Financing Activities section of the cash flow statement.