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Under which type of activity will you classify the sale of shares of another company while preparing cash flow statement?
- a)Investing and Financing
- b)Investing Activity
- c)Financing Activity
- d)Operating Activity
Correct answer is 'B'. Can you explain this answer?
Verified Answer
Under which type of activity will you classify the sale of shares of a...
Sale of shares of other company are part of investment which is now sold by the company. It is sale of investment, so it will take place in investing activity.
This question is part of UPSC exam. View all Commerce courses
Most Upvoted Answer
Under which type of activity will you classify the sale of shares of a...
**Explanation:**
The sale of shares of another company is classified as an **investing activity** while preparing the cash flow statement. Let's understand why this is the correct classification:
**Cash Flow Statement:**
The cash flow statement is a financial statement that provides information about the cash inflows and outflows of a company during a specific period of time. It is divided into three main sections: operating activities, investing activities, and financing activities.
**Operating Activities:**
Operating activities are the day-to-day activities of a company that result in revenue generation. These activities include the sale of goods or services, payment of expenses, and receipt of cash from customers. The operating section of the cash flow statement includes cash inflows and outflows directly related to these activities.
**Investing Activities:**
Investing activities involve the purchase or sale of long-term assets and investments. These activities include the purchase or sale of property, plant, and equipment, investments in other companies, and the collection of loans made to other entities. The investing section of the cash flow statement includes cash inflows and outflows related to these activities.
**Financing Activities:**
Financing activities involve the raising and repayment of funds to finance the company's operations and growth. These activities include the issuance or repurchase of company stock, the issuance or repayment of debt, and payment of dividends to shareholders. The financing section of the cash flow statement includes cash inflows and outflows related to these activities.
**Classification of the Sale of Shares:**
When a company sells shares of another company, it is considered an investment activity rather than a financing activity. This is because the sale of shares represents a transaction involving an investment in another entity, rather than a transaction directly related to the company's own financing activities.
Therefore, the correct classification for the sale of shares of another company while preparing the cash flow statement is **"Investing Activity"**.
The sale of shares of another company is classified as an **investing activity** while preparing the cash flow statement. Let's understand why this is the correct classification:
**Cash Flow Statement:**
The cash flow statement is a financial statement that provides information about the cash inflows and outflows of a company during a specific period of time. It is divided into three main sections: operating activities, investing activities, and financing activities.
**Operating Activities:**
Operating activities are the day-to-day activities of a company that result in revenue generation. These activities include the sale of goods or services, payment of expenses, and receipt of cash from customers. The operating section of the cash flow statement includes cash inflows and outflows directly related to these activities.
**Investing Activities:**
Investing activities involve the purchase or sale of long-term assets and investments. These activities include the purchase or sale of property, plant, and equipment, investments in other companies, and the collection of loans made to other entities. The investing section of the cash flow statement includes cash inflows and outflows related to these activities.
**Financing Activities:**
Financing activities involve the raising and repayment of funds to finance the company's operations and growth. These activities include the issuance or repurchase of company stock, the issuance or repayment of debt, and payment of dividends to shareholders. The financing section of the cash flow statement includes cash inflows and outflows related to these activities.
**Classification of the Sale of Shares:**
When a company sells shares of another company, it is considered an investment activity rather than a financing activity. This is because the sale of shares represents a transaction involving an investment in another entity, rather than a transaction directly related to the company's own financing activities.
Therefore, the correct classification for the sale of shares of another company while preparing the cash flow statement is **"Investing Activity"**.
Community Answer
Under which type of activity will you classify the sale of shares of a...
As per the format the issue of shares are classify under investing activity
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Under which type of activity will you classify the sale of shares of another company while preparing cash flow statement?a)Investing and Financingb)Investing Activityc)Financing Activityd)Operating ActivityCorrect answer is 'B'. Can you explain this answer?
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