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AS 3

Suresh Pai S (Tax Consultant) (1029 Points)

28 March 2017

How will you classify short term deposit in cash flow statements?

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10 Replies

shilpi (student) (780 Points)
Replied 28 March 2017

"Cash and Cash equivalent balance"

Suresh Pai S (Tax Consultant) (1029 Points)
Replied 28 March 2017

It is classified under investing activities in page no 1.40. Accounting (IPC)

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shilpi (student) (780 Points)
Replied 28 March 2017

Right

Suresh Pai S (Tax Consultant) (1029 Points)
Replied 28 March 2017

Its not about right. What is the logic by ICAI yaar. By the logic of ICAI , an operating cycle is one year. Short term deposit gets matured within one year. Then why it is not a cash or cash equivalent?

Suresh Pai S (Tax Consultant) (1029 Points)
Replied 28 March 2017

I think the logic behind this

Suresh Pai S (Tax Consultant) (1029 Points)
Replied 28 March 2017

Cash equivalents are held for the purpose of meeting short-term cash commitments rather than
for investment or other purposes. For an investment to qualify as a cash equivalent, it must be readily
convertible to a known amount of cash and be subject to an insignificant risk of changes in value.
Therefore, an investment normally qualifies as a cash equivalent only when it has a short maturity of,
say, three months or less from the date of acquisition. Investments in shares are excluded from cash
equivalents unless they are, in substance, cash equivalents; for example, preference shares of a
company acquired shortly before their specified redemption date (provided there is only an insignificant
risk of failure of the company to repay the amount at maturity