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What does this mean exactly?

Dhruv Ray (6 Points)

22 August 2020

What does "Bank balance other than cash and cash equivalents" mean under current assets? The company has 3.4 crores in cash & cash equivalents but has 42 crores in Bank balance other than cash and cash equivalents. What does this mean exactly? Thank you!

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yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 22 August 2020

Current assets hold liquid cash. Meaning, they can be converted into cash quickly. Example are:

Cash- what cash a cashier holds in hand for daily operations.

Cash equivalents- short term securities like FD’s which can be converted immediately into cash or exchanged.

Bank- all the money received from customers from sales is deposited into bank. 42 crores is in the bank.

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Dhruv Ray (6 Points)
Replied 23 August 2020

The red underline is what I need to know the meaning of...

Sagar Patel (Tax and Business Consultant) (11611 Points)
Replied 23 August 2020

"Cash" is defined as cash and demand deposits with banks.

"Cash equivalents" defined as short term, highly liquid investment that are readily convertible into known amounts of cash and which are subject to an insignificant risk of change in value.

"Bank balance other than Cash and Cash equivalents" defined as balance with bank having a restriction regarding it's liquidity. Balances with banks held as margin money or security against borrowings, guarantees, other commitments etc are included in bank balances other than cash and cash equivalents.

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Dhruv Ray (6 Points)
Replied 23 August 2020

They are investing their free cash flow towards this "Bank balance not considered as cash & cash equivalents". Could it be an investment of sorts or is it necessarily a collateral or margin money? Thank you!

yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 23 August 2020

It cannot be a collateral because Collateral is usually an equity instrument or an asset. It will be recognised under separate head like:

Non-cash collateral given	Dr.
Assets/ Equity Instruments/ other assets given	Cr.
(being risk & rewards still with the company)

Sometimes, the client deposit a lump sum amount with the trading/clearing member in respect of the margin instead of paying/receiving margin on daily basis. In such case, the amount of margin paid/received from/into such accounts should be debited/credited to the ‘Deposit for Margin Account’. At the end of the year the balance in this account would be shown as deposit under ‘Current Assets’.

So, margin money is not the underlined one.

Finally, all non current assets fall under investing activities. So, it must be a long term bank fixed deposit. Look at the annual reports of banks, you might get an insight into what items are considered under this heading in notes.

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