“Cash flows from interest and dividends” received and paid –In what way and manner they are being reported?

International Accounting Standard (IAS)7 Statement of Cash Flows in para31 requires:

Cash flows from interest and dividends received and paid shall each be disclosed separately. Each shall be classified in a consistent manner from period to period as either operating, investing or financing activities.

From the above statement we can understand the following:

• Entity shall not disclose the interest and dividends received and paid on net basis i.e. interest or dividend received shall not be set off against interest or dividend paid. In simple words each shall be disclosed separately in Statement of Cash Flows.
• Entity is given an option to make its own decision that under what activity in Statement of Cash Flows the interest paid/received and dividends paid/received be disclosed. For example, entity can disclose interest paid either as operating activity or financing activity. Same is the case with interest received that entity has the option to disclose it either under the heading operating activity or investing activity
• Whatever choice entity makes it shall be followed as an accounting policy consistently from period to period. Again, it is left on the entity to decide what is appropriate in a given circumstances.

IAS7 Para33 states that if the entity under consideration is a financial institution then interest paid and interest and dividends received are usually classified as operating activities. That means in case of statement of cash flows relating to financial institutions things are clear. Its just the case of entities other than financial institutions where accountants don’t agree on a single treatment.

agrees with Mr Moataz

Cash flows from interest either paid or received treated as operating activity .

But dividends paid are financing activities on the other hand dividends received are operating activities.

Interest paid or received is reported as Cash-Flow from Operating Activities.

Dividend being a part of financing activity, may be reported as Cash-Flow from Financing Activities but is also reported as Cash-Flow from Operating Activities.

I agree with Professor muhammad siddiqui

 i full agree with Mr Moataz

Good answer by Mr. Moataz.. I agree with him

Mr. Moataz has given the correct answer