Question

According to the financial accounting board (FASB), which of the following is a cash flow from a "financing" activity?

• A. Cash outflow to the government for taxes
• B. Cash outflow to shareholders as dividend
• C. Cash outflow to lenders as interest
• D. Cash outflow to purchase bonds issued by another company

Answer 1

Answer: (B)

Cash outflow to shareholders as dividend

As per AS-3, financing activities are the activities that result in changes in the size and composition of the owners' capital and borrowings of the enterprises. Separate disclosure of cash flows arising from financing activities is important because it is useful in predicting claims on future cash flows by providers of funds to the enterprise.