Question : Which of the following statements is not true?
Option 1: Cash equivalents are short-term, highly liquid investments that are readily convertible into known amount of cash and which are subject to insignificant change in value.
Option 2: Operating Activities are the principal revenue producing activities of an enterprise and those activities which are not investing or financing activities.
Option 3: Shares issued to promoters in consideration of their services are shown as a Financing Activity.
Option 4: Gratuity paid to a retiring employee is an Operating Activity.
Correct Answer: Shares issued to promoters in consideration of their services are shown as a Financing Activity.
Solution : Answer = Shares issued to promoters in consideration of their services are shown as Financing Activity.
Shares issued to promoters in consideration of their services are
not
shown under financing activities because this is an example of a
cash transaction
. Non-cash transactions are those transactions which do not involve cash. Financing activities involve transactions related to obtaining or repaying capital, such as issuing debt or equity securities. Issuing shares for services rendered falls under operating activities as it relates to core business operations.
Hence, the correct option is 3.
