AS 3
Suresh Pai S (Tax Consultant) (1029 Points)
28 March 2017
How will you classify short term deposit in cash flow statements?
10 Replies
Suresh Pai S
(Tax Consultant)
(1029 Points)
Replied 28 March 2017
It is classified under investing activities in page no 1.40. Accounting (IPC)
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
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
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
Suresh Pai S
(Tax Consultant)
(1029 Points)
Replied 28 March 2017
From the above they are assuming significant risk in the value in case of premature closure of deposit. But is that really significant?
shilpi
(student)
(780 Points)
Replied 28 March 2017
I am also thinking the same.Will email this query to ICAI Bos.
shilpi
(student)
(780 Points)
Replied 28 March 2017
I am also thinking the same.Will email this query to ICAI Bos.
Suresh Pai S
(Tax Consultant)
(1029 Points)
Replied 28 March 2017
Yeah. That will be great.I am disturbing them with my queries. Thought of not doing it. Please do it. Share the result here.
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