Cash Equivalents and Temporary Investments

An entity had an investment in a six-month time deposit with a due date in January (one month after balance sheet date). Should the entity classify the time deposit as a cash equivalent or temporary investment?

Keywords: Mazars, Thailand, Accounting, IAS 7, IFRS, TFRS for NPAEs, Cash Equivalents, Temporary Investments

21 July 2014

In accordance with IAS 7 ‘Statement of cash flows’, 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.

Accordingly, the six-month time deposit should be classified as a temporary investment.

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