CA Inter P1 · Chapter 2 · Question 2 of 12
Case: Kaveri Pumps Ltd, a manufacturing company, paid interest of ₹6,40,000 on its term loans during the year. Under AS 3, Cash Flow Statements, this payment should be classified as a cash flow from:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) Financing activities
Explanation
AS 3 requires interest paid by an enterprise other than a financial enterprise to be classified as a financing activity, because it is a cost of obtaining financial resources. Only in the case of a financial enterprise is interest paid classified as an operating activity. AS 3 does not give a free choice for non-financial enterprises.
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