Question

\(\textit{Statement I:}\) In case of non-financial enterprises, payment of interest and dividends are classified as financing activities, whereas receipt of interest and dividends are classified as investing activities. 
\(\textit{Statement II:}\) Investing and financing transactions that require the use of cash or cash equivalents, should be excluded from cash flow statement. 
Choose the correct alternative from the following:

• A. Both the statements are false.
• B. Both the statements are true.
• C. Statement I is false and Statement II is true.
• D. Statement I is true and Statement II is false.

Hint:

Always differentiate between cash-based and non-cash investing/financing activities when preparing Cash Flow Statements.

Answer 1

The Correct Option is D

Statement I is true because according to AS-3 (Revised), for non-financial companies, interest paid and dividends paid are shown under financing activities, and interest/dividends received under investing.
Statement II is false because investing and financing activities requiring cash or cash equivalents are included in cash flow statements. Only non-cash transactions are excluded.