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CA Intermediate · Advanced Accounting · AS 3 Cash Flow Statement

At the year end, Kaveri Textiles Ltd reports: cash in hand ₹2,00,000; balance in current account ₹5,00,000; a treasury bill bought 45 days before its maturity, held at ₹3,00,000; and a fixed deposit with an original maturity of 9 months, now due in 2 months, held at ₹4,00,000. What figure should it show as cash and cash equivalents in its cash flow statement under AS 3?

Cash and cash equivalents are ₹10,00,000, made up of cash ₹2,00,000, bank balance ₹5,00,000 and the treasury bill ₹3,00,000. The bill qualifies because its maturity at acquisition was under three months. The fixed deposit is excluded because its original maturity was nine months, regardless of the time remaining.

  1. A₹7,00,000
  2. B₹10,00,000Correct
  3. C₹11,00,000
  4. D₹14,00,000

Explanation

Cash equivalents are short-term, highly liquid investments with an original maturity of three months or less from the date of acquisition. The treasury bill qualifies because it had 45 days to maturity when bought. The fixed deposit does not qualify because its original maturity was 9 months, even though only 2 months remain. Total = 2,00,000 + 5,00,000 + 3,00,000 = ₹10,00,000. ₹14,00,000 wrongly includes the fixed deposit.

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