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CA Intermediate · Advanced Accounting · AS 3 Cash Flow Statement

Sagar Textiles Ltd. holds a fixed deposit of Rs 5,00,000 with a bank, made on 1 February with an original maturity of 11 months. The company also holds Rs 2,00,000 in treasury bills bought on 15 March with 60 days to maturity. The balance sheet date is 31 March. For the cash flow statement under AS 3, what amount do these two items add to cash equivalents at year end?

Only the Rs 2,00,000 treasury bills count as cash equivalents. AS 3 tests the original maturity at the date of acquisition, which must be three months or less. The fixed deposit had an original maturity of 11 months, so it is excluded despite maturing soon.

  1. ARs 7,00,000
  2. BRs 2,00,000Correct
  3. CRs 5,00,000
  4. DNil

Explanation

Cash equivalents are short-term highly liquid investments with original maturity of three months or less from the date of acquisition. The treasury bills (60 days) qualify, giving Rs 2,00,000. The fixed deposit had an original maturity of 11 months, so it does not qualify even though only 2 months remain at year end. Rs 7,00,000 wrongly counts the deposit.

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