Operating Activity includes cash flows from principal revenue-generating activities. Cash receipt from trade receivables (IV) represents collection from customers, which is part of operating activities.
Investing Activity involves acquisition and disposal of long-term assets. Purchase of machinery (III) is a capital expenditure, falling under investing activities.
Financing Activity includes activities that alter the capital structure of the enterprise. Redemption of preference shares (II) reduces equity capital, making it a financing activity.
Cash Equivalents are short-term, highly liquid investments readily convertible to cash with insignificant risk of value changes. Bank (I) balances (typically bank deposits with maturity of 3 months or less) qualify as cash equivalents.
Correct Matching:
(A) → (IV)
(B) → (III)
(C) → (II)
(D) → (I)
This corresponds to Option 3.