[ISC] Q. 5 Cash Flow Statement Solution TS Grewal Class 12 (2026-27)
Solution of Question number 5 of the Cash Flow Statement of TS Grewal Book 2026-27 session ISC Board?
Identify which of the following transactions are: a) Operating Activities; b) Investing Activities, c) Financing Activity, and d) Cash and Cash Equivalents:
a) Purchase of Investments
b) Dividend Paid
c) Dividend received
d) Rent received by a Real Estate Company
e) Rent received by a Trading Company
f) Interest paid on Borrowings
g) Proceeds from Issue of Debentures
h) Marketable Securities
Answer:-
Here is the classification and reason for each item in exactly two lines:
a) Purchase of Investments
Investing Activity because it represents a cash outflow for acquiring non-current financial assets to earn future returns. This transaction involves allocating capital into long-term placements rather than daily operations.
b) Dividend Paid
Financing Activity because it represents a distribution of profits to shareholders who provided the equity capital. This cash outflow stems directly from servicing and maintaining the enterprise’s owner’s capital structure.
c) Dividend received
Investing Activity because it is an income generated directly from the company’s long-term placements of capital in shares of other companies. It represents a cash inflow derived directly from holding a non-current asset.
d) Rent received by a Real Estate Company
Operating Activity because leasing properties is the primary, daily revenue-producing activity for a real estate firm. For this specific nature of business, rental income represents core operational revenue rather than an investment return.
e) Rent received by a Trading Company
Investing Activity because the core business is trading goods, making property ownership a secondary placement of capital. Therefore, the rental income is classified as a return on an investment asset rather than an operational inflow.
f) Interest paid on Borrowings
Financing Activity because it represents the cost of servicing long-term or short-term borrowed capital. This cash outflow is directly linked to maintaining the loan liabilities that form the enterprise’s debt structure.
g) Proceeds from Issue of Debentures
Financing Activity because it is a method of raising long-term capital through debt instruments. Under accounting standards, this transaction directly alters the size and composition of the company’s non-current liabilities.
h) Marketable Securities
Cash and Cash Equivalents because they are short-term, highly liquid investments that are readily convertible into known amounts of cash with insignificant risk of changes in value. They form part of the closing/opening cash balances rather than a specific activity.
