Question

Tax paid on dividend should be classified as which type of activity along with dividend paid.

Options

• Operating activities

• Investing activities

• Financing activities

• Cash activities

Answer 1

Financing activities

Explanation:

Income tax (tax on ordinary profits), capital gains tax (tax on capital profits), and dividend tax are all examples of taxes (tax on the amount distributed as dividend to shareholders). Cash flows from income taxes must be stated separately and categorised as cash flows from operational operations unless they can be properly connected with financing and investing activities, according to AS 3. This definitely suggests the following:

Operating cash flows should include taxes on operating profit.

Dividend tax, or the tax paid on a payout, should be classified as a financing activity, along with the dividend itself.

The capital gains tax paid on the sale of fixed assets should be categorized as an investment activity.