While preparing a Cash Flow Statement, dividend paid by a financial enterprise will be considered as which one of the following activities?

Correct option is A

As per AS-3 (Revised): Cash Flow Statements, the classification of cash flows differs for financial enterprises because their primary business operations involve lending, borrowing, investing, and financial services.
In the case of a financial enterprise, items such as:
· interest received,
· interest paid,
· dividends received, and
· dividends paid
are all considered part of Operating Activities, because they directly relate to the principal revenue-generating operations of the enterprise.
Thus, dividend paid by a financial enterprise is treated as an Operating Activity, which makes option (a) the correct answer.
Information Booster
1. For non-financial enterprises, dividend paid is treated as a Financing Activity, but for financial enterprises, it is Operating.
2. AS-3 allows classification flexibility depending on the nature of business operations.
3. Operating activities are the primary revenue-producing activities of an enterprise.
4. Financial enterprises treat interest and dividends as operational cash flows due to their business model.
5. Dividend paid affects cash outflow, and is shown under operating activities only for financial institutions like banks and NBFCs.
Additional Information
· (b) Investing: Incorrect. Investing activities include acquiring or disposing of long-term assets and investments, not payment of dividends.
· (c) Financing: Incorrect for financial enterprises. However, for non-financial companies, dividend paid is indeed a financing activity, but not here.
· (d) Both operating and financing: Incorrect because AS-3 provides a specific classification: Operating Activity for financial enterprises only.