Classity the following transactiona as Operating Activities for:
(i) Finacial Enterprise , and (ii) Non- finanical Enterprise.
(a) Pruchase of securites of a company ,
(b) Brokerage paid tor the above purchases
(c ) Sale of Securities of a company,
(d)Dividend and interest recived on securities,
(e) Dividend paid to shareholders,
(f) Interest paid on borrowings,
(g) Loan and advances made, and
(h) Receipt of loans and advances made.
Given reason of your answer.
Answers
Answer:
Classification of the transactions
Explanation:
(i) Financial Enterprise :
(a) Purchase of securities of a company ,
(b) Brokerage paid tor the above purchases
(c ) Sale of Securities of a company,
(d) Dividend and interest received on securities,
(g) Loan and advances made, and
(h) Receipt of loans and advances made.
All the transactions except (e) and (f) (i.e., Dividend paid to shareholders be classified or shown as Operating Activities. It is so because Purchase and Sale of Securities and also Borrowings and Advancing Loans are the principal revenue producing activities of a financial enterprise.
Non financial Enterprise:
(a) Purchase of securities of a company ,
(b) Brokerage paid tor the above purchases
(c ) Sale of Securities of a company,
(d) Dividend and interest received on securities,
(g) Loan and advances made, and
(h) Receipt of loans and advances made.
All the transactions except (e) and (f) (i.e., Dividend paid to shareholders and Interest paid on borrowings respectively) shall be classified as Investing Activities because these are not the principal revenue producing activities of the enterprise.
Transactions (e) and (f) shall be classified as Financing Activities because these are related to activities that change the size and composition of the owners' capital and borrowings.