Dear Abhinandan Jain You have raised a very relevant query. According to the definition of "Investments" in AS-13 and the "Guidance Note on Terms Used in Financial Statements", Investments are assets held by an enterprise for earning income by way of dividends, interest, and rentals, for capital appreciation, or for other benefits to the investing enterprise. Thus, bank FD can fall under the category of investments. Further, the newly notified Schedule VI (termed as Revised Schedule VI) gives preference of Accounting Standards over Schedule VI requirements. In my opinion, Bank FD with more than 3 months but less than 12 months maturity should be treated as current investments. Bank FDs with more than 12 months maturity should be treated as non-current investments. Bank FDs with less than 3 months maturity come within the definition of "Cash Equivalents" as per AS-3 and hence will have to be categorised as cash equivalents.

@ Vivek Hebbar

If we strictly follow the Revised Schedule VI notified by MCA, then Fixed Deposit should form part of Cash & Cash Equivalents. But if FD is more than 12 months, then in MCA Circular, it is clearly written that " Bank Deposits with more than 12 months maturity shall be disclosed seperately"

In my opinion above statement can be interpreted in two ways:

One way: This means even FD is having more than 12 m maturity it will come under Cash & Cash Equivalent but dsclosed seperately (as shown in this Article by Sanyam Arora)

2nd interpretation: This mean FD having more than 12 months maturity should be dsclosed seperately i.e not to be included in this Cash & Cash Equivalent heading.

 

But if we refer to the FAQs issued by ICAI, then it should be classified as non current since it is expected to be realiseable more than 12 months.

But since AS prevails over revised schedule, so if we think this manner, then :

 

• As per Sch VI (R), “Cash and Cash Equivalents” in the Assets comprises of items such as Balances with Banks held as Margin Money or Security against Borrowings, Guarantees, etc. and Bank Deposits with more than 12 months maturity.
• AS–3 Requirement: As per AS–3 Cash Flow Statements, an Investment normally qualifies as a Cash Equivalent only when it has a short maturity of three months or less from the date of acquisition.
• Conflict: Hence, Bank Balances held as Margin Money or Security against Borrowings are neither in the nature of Demand Deposits, nor readily available for use by the Company, and accordingly, do not meet the aforesaid definition of Cash Equivalents. Thus, this is an apparent conflict between the requirements of Sch VI (R) and AS.
• Resolving Conflict: The above conflict can be resolved by changing the caption “Cash and Cash Equivalents” to “Cash and Bank Balances” which may have two sub–headings, viz. “Cash and Cash Equivalents” and “Other Bank Balances.” The former should include only the items that constitute Cash and Cash Equivalents defined as per AS–3 (and not Sch VI (R)), while the remaining line–items may be included under the latter heading.

 

If we summarize the fact:

1. First of all treat all types of FD wheher within 3 months or more than 12 months as Investment (as per AS-13 as it creates interest income)

2. Identify whether it is realisable within 12 months or not

3. If realisable within 12 months, then show it in Current Assets. Under Current Assets the sub heading would be either "Cash & Cash Equivalent" (show here when maturity is below 3m i.e Flexi type Fixed Deposits giving respect to AS-3) OR Short term Investments (better to show here when more than 3m to 12 months)

4. If realisable after 12 months, the show it in Non Current assets (giving respect to FAQ by ICAI). Under NCA, Since Instituthe has not mentioned the sub heading of NCA,so in my opinion sub heading would be Long term Investment (as per AS -13)

OMG there was lots of confusions regarding this, thank god i'm able to summarize...

now pls comment whether i'm write or not...

For reference i'm attaching two files:

1. Institute's FAQs

2. MCA notification

 

MCA Notification

Dear Abhinandan

Thats perfect.

Abhinandan (Congratulations in Marathi)

well, i must say...it was a gud effort... keep up d gud work..!!

 

Originally posted by : ABHINANDAN JAIN
	@ SANYAM ARORA Read more at: /forum/finalization-of-balance-sheet-part-8211-2--223509.asp#.UHRFiq4lUTB SANYAM ARORA Read more at: /forum/finalization-of-balance-sheet-part-8211-2--223509.asp#.UHRFiq4lUTB My qyuest: Why we are not considering Fixed Deposit as Investment as it is a type of Investment for earning Interest Income (as per AS-13) and it shud be treated as per As-13 for presentation in Balance sheet (since AS prevails ovr Revised Schedule)... Pls resolve this one

Dear Abhinandam,

I have read your query & the same i have discussed with many people including my CA, so please wait for my next part all the queries will be resolved.

Thanks

@ SANYAM ARORA

Pls refer my thoughts also while discussing with ur collegues or CA...

 

i'll be waiting for ur dashing articles.....

wish u good luck....