Match List–I with List–II : List I (Transaction) List II (Activity) (a) 1. (b) 2. (c) 3. (d)Cash payments of salaries and wages Investing Cash proceeds from issuing shares at a premium Operating Payment of income tax Financing Tax deducted at source on interest received from subsidiary company
Select the correct answer using the codes given below.
Matching Transactions with Cash Flow Activities
Understanding cash flow activities is crucial for analyzing a company's financial health. Cash flows are typically classified into three main categories: Operating, Investing, and Financing activities.
Understanding Cash Flow Activities
- Operating Activities: These are the principal revenue-producing activities of the entity and other activities that are not investing or financing activities. Examples include cash receipts from sales of goods and services, and cash payments to suppliers, employees, and for operating expenses.
- Investing Activities: These are the acquisition and disposal of long-term assets and other investments not included in cash equivalents. Examples include purchasing or selling property, plant, and equipment, and investments in other entities.
- Financing Activities: These are activities that result in changes in the size and composition of the equity capital and borrowings of the entity. Examples include issuing shares, issuing bonds, repaying borrowings, and paying dividends.
Analyzing Each Transaction
Let's analyze each transaction from List I and determine its classification based on the definitions above:
- (a) Cash payments of salaries and wages: Salaries and wages are day-to-day expenses related to running the core business operations. Therefore, this is an Operating Activity.
- (b) Cash proceeds from issuing shares at a premium: Issuing shares is a transaction that changes the equity capital of the company. This is a method of raising funds from owners. Therefore, this is a Financing Activity.
- (c) Payment of income tax: Income tax is generally based on the operating profit of the business. Unless specifically identified with investing or financing activities, income tax payments are classified as Operating Activities.
- (d) Tax deducted at source on interest received from subsidiary company: Interest received from a subsidiary usually arises from a loan given or investment made in the subsidiary, which is an investing activity. The tax associated with income from an investing activity is typically classified within Investing Activities.
Matching List I with List II
Based on the analysis, the correct matching is:
| List I (Transaction) | List II (Activity) | Classification |
|---|---|---|
| (a) Cash payments of salaries and wages | 2. Operating | Operating Activity |
| (b) Cash proceeds from issuing shares at a premium | 3. Financing | Financing Activity |
| (c) Payment of income tax | 2. Operating | Operating Activity |
| (d) Tax deducted at source on interest received from subsidiary company | 1. Investing | Investing Activity |
This gives the matching sequence: a - 2, b - 3, c - 2, d - 1.
Important Questions from Cash Flow Analysis
Which of the following activities should be shown separately in the cash flow statement prepared as per Accounting Standard-3 ?
a. Cash flow from borrowing activities.
b. Cash flow from operating activities.
c. Cash flow from financing activities.
d. Cash flow from investing activities.
e. Cash flow from miscellaneous activities.
Codes :
- The balance of property at cost has been ₹ 20,000 and ₹ 17,000 in 2015 and 2016, respectively. The profit on the sale of property of ₹ 2,000 is credited to Capital Reserve Account. New property costing ₹ 5,000 was bought in 2016. Determine the sale proceeds from property.
- Which of the following is not a cash inflow ?
Cash from Operation is equal to
Proceeds from sale of patent is classified under which activity in Cash Flow Statement?
