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 accurate: per AS-3 (Revised), non-financial entities classify interest and dividend payments as financing activities, and interest/dividend receipts as investing activities.
Statement II is incorrect: cash flow statements incorporate investing and financing activities involving cash or cash equivalents. Only non-cash transactions are excluded.