Match List-I with List-II. List-I (Items) List-II(Type of Cash Flow A…

Match List-I with List-II.

List-I (Items)	List-II (Type of Cash Flow Activity)
(A) Income tax Paid	(I) Operating Activity
(B) Dividend Received	(II) Financing Activity
(C) Loan Repaid	(III) Investing Activity
(D) Shares issued against Machinery	(IV) Not a Cash flow Activity

Choose the correct answer from the options given below:

Answer & explanation

Correct answer: option 2

The correct answer is Option (2) → (A)-(I), (B)-(III), (C)-(II), (D)-(IV)

For a non-financial company, each item is placed by the activity it comes from:

(A) Income tax Paid — this matches (I) Operating Activity. Tax on operating profit is an operating cash flow.

(B) Dividend Received — this matches (III) Investing Activity. It is a return on investments held by the company.

(C) Loan Repaid — this matches (II) Financing Activity. Repaying borrowed funds changes the company’s borrowings.

(D) Shares issued against Machinery — this matches (IV) Not a Cash flow Activity. No cash moves when shares are given for an asset, so it is left out of the cash flow statement.

NCERT (2026-27 edition):
Taxes on Income and Gains – “Taxes may be income tax (tax on normal profit), capital gains tax (tax on capital profits), dividend tax (tax on the amount distributed as dividend to shareholders). AS-3 requires that cash flows arising from taxes on income should be separately disclosed and should be classified as cash flows from operating activities unless they can be specifically identified with financing and investing activities. This clearly implies that: tax on operating profit should be classified as operating cash flows.”

NCERT (2026-27 edition):
Interest and Dividend – “… 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.”

NCERT (2026-27 edition):
Cash Outflows from financing activities – “… Cash repayments of amounts borrowed. Interest paid on debentures and long-term loans and advances. Dividends paid on equity and preference capital.”

NCERT (2026-27 edition):
Non-cash Transactions – “As per AS-3, investing and financing transactions that do not require the use of cash or cash equivalents should be excluded from a cash flow statement. Examples of such transactions are – acquisition of machinery by issue of equity shares or redemption of debentures by issue of equity shares.”