Match list I with list II and choose the correct answer from the options given below:
| LIST 1 | LIST 2 |
| A) Decrease in Goodwill A/c | I) Operating activity |
| B) Dividend paid | II) Financing activity |
| C) Rent received | III) Non-cash expenses |
| D) Purchase of machine for trading purpose | IV) Investing activity |
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → A-III, B-II, C-IV, D-I
Items are placed by the activity they arise from; an item with no cash, such as goodwill written off, is a non-cash item added back to profit.
(A) Decrease in Goodwill A/c — this matches (III) Non-cash expenses. Goodwill written off (amortised) reduces profit without any cash outflow and is added back.
(B) Dividend paid — this matches (II) Financing activity. A payment to the owners on their capital.
(C) Rent received — this matches (IV) Investing activity. Rent on property held as investment is an investing inflow.
(D) Purchase of machine for trading purpose — this matches (I) Operating activity. A machine bought to be sold is stock-in-trade (inventory held for resale), part of the main business.
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