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    Question

    A diversified financial services group prepares

    consolidated cash flows. It earns interest on loans and pays interest on debt; it receives dividends on equity investments and pays dividends to its own shareholders. Management wants the presentation to reflect the nature of operations as a financial institution. Which classification aligns best with Ind AS 7’s policy choice for such entities, applied consistently?
    A Interest received – Investing; Interest paid – Financing; Dividends received – Investing; Dividends paid – Financing Correct Answer Incorrect Answer
    B Interest received – Operating; Interest paid – Operating; Dividends received – Operating; Dividends paid – Financing Correct Answer Incorrect Answer
    C Interest received – Operating; Interest paid – Financing; Dividends received – Investing; Dividends paid – Operating Correct Answer Incorrect Answer
    D All four in Operating for comparability Correct Answer Incorrect Answer
    E Interest received – Investing; Interest paid – Operating; Dividends received – Operating; Dividends paid – Investing Correct Answer Incorrect Answer

    Solution

    For financial institutions, Ind AS 7 permits (and practice often follows) classifying interest and dividends received as operating and interest paid as operating, reflecting core revenue-generating activities; dividends paid are financing. Consistency and disclosure of policy are key.

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