Question

In case of a non-financial enterprise, payment of dividend is considered as a/an:

• A. Operating Activity
• B. Investing Activity
• C. Financing Activity
• D. Both Investing and Financing Activity

Answer 1

The Correct Option is C

According to AS-3 (Revised) on Cash Flow Statements:
Financing Activities include transactions that result in changes in the size and composition of the owner’s capital and borrowings of the enterprise.
For a non-financial enterprise, dividend paid to shareholders is classified as a cash outflow under financing activities because it is a distribution of profits to equity holders.
This is different from a financial enterprise (like a bank), where interest and dividends may be treated differently.
Dividend received = investing activity
Dividend paid = financing activity
Hence, payment of dividend in a non-financial enterprise is a financing activity.