Calculation of effective capital as per section 198

This query is : Resolved

ayushi lavania (Querist)
Follow

11 March 2022 The term "Investments" includes "Current Investments" for the purpose of Calculation of Effective Capital ?

Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
Follow

06 July 2024 In financial and accounting contexts, the term "Investments" generally encompasses all types of investments held by an entity. This typically includes both "Current Investments" and "Non-Current Investments." Here’s a brief overview of these terms:

1. **Current Investments**: These are investments that are intended to be held for a short period, usually up to one year. They are readily marketable and are expected to be converted into cash within a short timeframe. Examples include investments in shares, mutual funds, or other securities that are readily tradable.

2. **Non-Current Investments**: These are investments that are intended to be held for longer than one year. They are not expected to be converted into cash quickly and may include investments in land, buildings, long-term bonds, or other securities that are not readily marketable.

When calculating "Effective Capital," which can refer to different metrics depending on the context (such as for regulatory compliance, financial reporting, or tax purposes), the term "Investments" generally encompasses both current and non-current investments.

To directly answer your question: **Yes**, "Investments" includes "Current Investments" when calculating Effective Capital, unless specified otherwise. This comprehensive approach ensures that all types of investments held by the entity are considered in the determination of its financial position and capacity.