Register now or log in to join your professional community.
A. Operating activities
B. Financing activities
C. Investing activities
Accountants’ opinion is divided on the treatment of dividend paid in Cash Flow Statement.
First Opinion
Dividend paid should be disclosed as operating activity.
As dividend is paid out of the profits generated by the entity’s operating activities it should be disclosed as operating activity. Another argument which they put is that as interest paid is a cost of funds obtained and shown as operating activity, similarly divined paid is also a cost of funds obtained and should be shown as operating activity.
Second Opinion
Dividend paid should be disclosed as financing activity.
As dividend is linked with the equity and changes in equity section are disclosed in financing activities section of the cash flow statement so dividend paid should also be shown in that section.
As per IAS7, wherever you disclosed the divined paid, it must be consistent from period to period.
Dividends payable can be classified as either:
Some people prefer to classify them as operating activities, because the funds are used to facilitate the trading of the company.
Others prefer to show it as a financing expense, because dividends arise when the company raises finance, either through borrowing money or raising equity.
The third answer is correct
C. Investing activities
Dividends paid may be classified as a financing cash flow because they are a cost of obtaining financial resources. Alternatively, dividends paid may be classified as a component of cash flows from operating activities in order to assist users to determine the ability of an entity to pay dividends out of operating cash flows.
Knowing how much cash a company uses toward paying dividends is important, especially in tough economic conditions during which cash becomes scarce. A look at the cash flow statement should tell you quickly what you need to know, and give you guidance about whether that use of capital is sustainable in the long run.
So, the answer is (A) Operating Activities
Dividends paid should be under financing activities, details you can have a look in IAS 7. Thank you
Small and large businesses pay dividends as a way of returning cash to their shareholders. A dividend payable is a liability on a company's balance sheet, but it does not affect the statement of cash flow until the company actually issues the dividend checks.
Cash dividend payments affect the financing-activities section of the statement of cash flow.
C >>>>>>>>>>>>>>>>>>>><<<<<<<<<<<<<<>>>>>>>>>>>>>>>>>>>>>>>
Financing activities. or it may be classified to operating activities as explained in other answers.
