IFRS IC clarifies presentation rules for demand deposits with restrictions on use arising from a contract with a third party

Keywords: Mazars, Thailand, IFRS, IFRS IC, IFRS 7, IAS 7, IAS 1

21 June 2022

The request submitted to the Committee related to the appropriate presentation in the statement of financial position of a demand deposit in the following situation:

• an entity holds a demand deposit whose terms and conditions do not place any limit on the amount of the deposit that the entity can access;
• the entity has a contractual obligation with a third party to keep a specified amount of cash in that demand deposit and to use that amount only for specified purposes. If the entity were to use the amounts in the demand deposit for another purpose, it would be in breach of its contractual obligation to the third party.

The Committee noted that the answer depended largely on whether these amounts met the definition of “cash” under IAS 7. The Committee observed that the definition of “cash” related only to the contract between the entity and the establishment holding the deposit, and there was thus no reason why the amounts would not be classified as “cash”. The contract with the third party would not affect this.

Thus, the amounts in the demand deposit should be presented as “cash and cash equivalents” as they meet the definition set out in IAS 7.

However, the Committee also emphasised that the entity would need to comply with the disclosure requirements in IFRS 7 relating to liquidity risk, as well as those in IAS 7 on components of “cash and cash equivalents”. It also noted that IAS 1 would require the entity to consider whether it needs to disclose additional information, to enable users of financial statements to understand the nature of the restrictions on the amounts and their impact on the entity’s financial position.