Separate disclosure of cash flow arising from Financial Activities is important because:
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → It is useful in predicting claims on future cash flow by providers of funds to the enterprise
Financing activities change the size and make-up of owners’ capital and borrowings. Showing them separately tells readers how much the providers of funds (shareholders and lenders) will claim from future cash flows as dividends, interest and repayments.
Why the other options are incorrect
Option (1) It helps in identifying the investment activities — Incorrect. Investing activities are shown in their own section.
Option (2) It helps in gaining in investing activities — Incorrect. Disclosure of financing cash flows does not produce gains in investing.
Option (3) It helps in making investing decision — Incorrect. This describes why investing cash flows are shown separately, not financing ones.
NCERT (2026-27 edition): |