FD is Equivalent to cash or not?
This query is : Resolved
Querist : Anonymous
Querist :
Anonymous
(Querist)
16 December 2009
Please can you tell me that FD for the period of 6 months or more, is equivalent to cash or not. Furthermore, please tell whether FD for the period more than 1 year can be assumed as current asset.
And please support your suggestions with logical reasons also.
Thanks
And please support your suggestions with logical reasons also.
Thanks
16 December 2009
As per AS-3 Cash Flow Statement :
Cash equivalent consiss of short-term highly liquid investment having maturity less than 3 months, which can be readily converted into cash without decline in its value.
When FD is for 6 months; the maturity period of which is not less than 3 months; then it is not a cash equivalent.
If it is for 6 months; you can say that without any decline in value; we can receive the money hence it is cash equivalent. This is not so because instrument says a maturity period of 6 months and the accounting standard says that this is not cash equivalent when it is so.
It is altogether a different matter that you can have premature payment. If your intetion is to have premature payment; then why you made such investment.
Even fixed assets/investment you can sell today if desire. But it does not mean that we have such assets for sale.
Cash equivalent consiss of short-term highly liquid investment having maturity less than 3 months, which can be readily converted into cash without decline in its value.
When FD is for 6 months; the maturity period of which is not less than 3 months; then it is not a cash equivalent.
If it is for 6 months; you can say that without any decline in value; we can receive the money hence it is cash equivalent. This is not so because instrument says a maturity period of 6 months and the accounting standard says that this is not cash equivalent when it is so.
It is altogether a different matter that you can have premature payment. If your intetion is to have premature payment; then why you made such investment.
Even fixed assets/investment you can sell today if desire. But it does not mean that we have such assets for sale.
16 December 2009
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 atmaturity).
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 atmaturity).
07 February 2010
Agreed with the Logic of Mr. Surendra
You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now
Click here to login now
Similar Resolved Queries
Unanswered Queries
- TDS CREDIT MISMATCHING
- Buy back of shares u/s69
- Tax Audit Applicability – Newly Formed Partnership Firm with Profit Below 6%/8%
- RATE AND HSN CODE
- TODAY INCOME TAX SITE IS NOT WORKING ANY OFFICIAL EXTENSION
- Portuguese Civil Code IT Return
- LIC maturity claim whether taxable
- Can we choose not to report losses in ITR3 if they cannot be carried forward?
- EMI ISSUE IN HOUSING LOAN OLD REGIME
- TDS AND ITR ISSUE
- CALCULATION OF DEFFERED TAX - OP BL IS DTL & CURRET IT DTA
- LLP audit under companies act
- Experienced CA recommendation from Kolkata for FNO return filing
- Interest Reporting in Form 168
- Sales of goods of amount Rs77 lakhs to a party
- Tax Demand of ₹4,650 for AY 2026-27
- Concept of Vendor and customner reconciliation
- Mistake in e-invoice identified after 24 hours
- EXPORT PAYMENT
- NRI ITR2 account in 2025-26.
Trending Online Classes
-
DT & Audit (Exam Oriented Fastrack Batch) - For May 26 Exams and onwards Full English
CA Bhanwar Borana & CA Shubham Keswani
Subscribe to Pro
Join an elite circle of professionals
CAclubindia
