Presentation of dividend income and dividend payment in cash flow statement

We receive a question from our reader to ask us on how to present dividend income in cash flow statement. We would like to do a re-cap before we answer the questions.

In an indirect cash flow statement, there are 3 types of activities presented on the face of cash flow statement,

-          Operating activities

-          Investing activities

-          Financing activities

The titles of these activities explain how the cash flow statement should be presented.

Dividend income relates to income earned from the Company’s investment in subsidiary or other investment (e.g. investment in associate or investment in available-for-sale investment). As a result, dividend income should be deemed as investing activities.

What about dividend paid by the Company to the shareholders? It should be presented as financing activities. Why? Divided payment relates to the return generated by shareholders from the financing provided by the shareholders (i.e. equity – share capital). As a result, dividend payment should be presented as part of financing activities.

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