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    Question

    As per AS-3, these activities are to be classified into

    following categories. Identify correct categories. 1. Operating, 2. Non Operating 3. Investing 4. Financing activities 5. Leasing
    A All except 1, 2 Correct Answer Incorrect Answer
    B All except 2, 3 Correct Answer Incorrect Answer
    C All except 2, 5 Correct Answer Incorrect Answer
    D All except 5 Correct Answer Incorrect Answer
    E All correct Correct Answer Incorrect Answer

    Solution

    Operating  activities  are  the  activities  that  constitute  the  primary  or  main  activities  of  an enterprise.  For  example,  for  a  company  manufacturing  garments,  operating  activities  are procurement of raw material, incurrence of manufacturing expenses, sale of garments, etc.   As per AS-3, investing activities are the acquisition and disposal of long-term assets and other investments not included in cash equivalents. Investing activities relate to purchase and sale of long-term   assets   or   fixed   assets   such   as   machinery,   furniture,   land   and   building,   etc. Transactions related to long-term investment are also investing activities.  As the name suggests, financing activities relate to long-term funds or capital of an enterprise, e.g.,  cash  proceeds  from  issue  of  equity  shares,  debentures,  raising  long-term  bank  loans, repayment of bank loan, etc. As per AS-3, financing activities are activities that result in changes in the size and composition of the owners’ capital (including preference share capital in case of a company) and borrowings of the enterprise.

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