Question

Shyam Sunder Ltd. is a financing company. Under which of the following activity will the amount of ‘Interest paid on loan’ be shown:

• A. Investing activity
• B. Financing activity
• C. Both Financing & Operating activity
• D. Operating activity

Hint:

For financial companies, interest paid and received are classified under Operating Activities, whereas for non-financial companies, interest paid falls under Financing Activities.

Answer 1

The Correct Option is D

1. Interest paid on loans is classified differently for financing and non-financing companies.

 2. For a financing company (like Shyam Sunder Ltd.), interest paid on loans is considered an operating expense since earning and paying interest is part of its core business operations. 

3. According to AS-3 (Cash Flow Statements), interest paid is classified as:
 - Operating Activity for financial institutions and banks. 
- Financing Activity for non-financial firms. 

4. Since Shyam Sunder Ltd. is a financing company, the interest paid on loans will be classified under operating activities in the cash flow statement.

Thus, the correct answer is: (D) Operating activity.