Interest received by a finance company is classified under which kind of activity while preparing a Cash Flow Statement?
Answer & explanation
Correct answer: option 1
In case of a financial enterprise (whose main business is lending and borrowing), interest paid, interest received and dividend received are classified as operating activities while dividend paid is a financing activity. In case of a non-financial enterprise, as per AS-3, it is considered more appropriate that payment of interest and dividends are classified as financing activities whereas receipt of interest and dividends are classified as investing activities.