Question

Statement I: Financing activities relate to long-term funds or capital of an enterprise.
Statement II: Separate disclosure of cash flows arising from financing activities is important because they represent the extent to which expenditures have been made for resources intended to generate future income and cash flows.
Choose the correct option from the following:

• A. Both Statement I and Statement II are correct
• B. Both Statement I and Statement II are incorrect
• C. Statement I is incorrect and Statement II is correct
• D. Statement I is correct and Statement II is incorrect

Hint:

Remember that financing activities relate to raising and repaying funds, while investing activities focus on acquiring and disposing of assets intended to generate future income.

Answer 1

The Correct Option is D

Analysis of Statement I: Financing activities involve inflows and outflows of funds related to long-term borrowings, equity financing, and repayment of loans or dividends. Therefore, Statement I is correct. Analysis of Statement II: The statement incorrectly attributes the importance of financing activities to expenditures for resources generating future income and cash flows. This description is more relevant to investing activities, not financing activities. Hence, Statement II is incorrect. Conclusion: Statement I is correct, and Statement II is incorrect.