02-21-2010, 02:34 PM
Hi Kamran,
You are very right.
Cash equivalent has been defined in IAS 7 Para 6 Short-term, highly liquid investments that are readily convertible into known amounts of cash and that are subject to an insignificant amount of risk of changes in value.
Cash equivalents are held by the entity for meeting short-term commitments. The true meaning of cash equivalents can be best understood by analyzing the definition given by the Standard. According to the definition, cash equivalents are required to possess these two attributes
(a) They should be âshort termâ in nature; that is, they are held for meeting short-term cash commitments. In other words, an investment normally qualifies as cash equivalent only if it has a short maturity, say, three months or less, from the date of acquisition.
(b) They should be âhighly liquid investmentsâ that are âreadily convertible to known amounts of cash and are subject to an insignificant risk of changes in value.â
Most of our juniors are also confused about the definition of cash, which is
Cash Comprises cash on hand and demand deposits with banks.
Demand deposit means, it is free from any lien, encumbrance, charge, restriction etc.
Regards,
GREAT KHANS
You are very right.
Cash equivalent has been defined in IAS 7 Para 6 Short-term, highly liquid investments that are readily convertible into known amounts of cash and that are subject to an insignificant amount of risk of changes in value.
Cash equivalents are held by the entity for meeting short-term commitments. The true meaning of cash equivalents can be best understood by analyzing the definition given by the Standard. According to the definition, cash equivalents are required to possess these two attributes
(a) They should be âshort termâ in nature; that is, they are held for meeting short-term cash commitments. In other words, an investment normally qualifies as cash equivalent only if it has a short maturity, say, three months or less, from the date of acquisition.
(b) They should be âhighly liquid investmentsâ that are âreadily convertible to known amounts of cash and are subject to an insignificant risk of changes in value.â
Most of our juniors are also confused about the definition of cash, which is
Cash Comprises cash on hand and demand deposits with banks.
Demand deposit means, it is free from any lien, encumbrance, charge, restriction etc.
Regards,
GREAT KHANS
