Identify the item that is treated as non-cash, while preparing Cash Flow Statement as per AS-3, under indirect method.

Deferred taxes

The correct answer is Option (2) → Deferred taxes

According to (AS) 3, 'Cash Flow Statement', under the indirect method, non-cash items are those items that are not directly related to cash but have an impact on the cash flow statement.

(1) Goodwill purchased: Goodwill purchased is not treated as a non-cash item while preparing the cash flow statement as it involves the outflow of cash. It is shown in investing activity.

(2) Deferred taxes: Deferred taxes may be a result of temporary differences between accounting and tax treatments and are considered as non-cash items in the cash flow statement.

(3) Debenture interest: Debenture interest is a cash outflow item and is not considered a non-cash item.

(4) Dividend paid: Dividend paid is considered as a cash outflow item and is not treated as a non-cash item. It is included as outflow in financing activity.