Question

Short-term highly liquid investments qualify as cash equivalents if they are realisable into known amounts of cash from the date of acquisition within a period of:

Hint:

Cash Equivalents = Highly liquid + Short maturity (typically 3 months or less from acquisition date) + Readily convertible to cash + Insignificant risk of value change.

Answer 1

As per Accounting Standard 3 (AS-3) on Cash Flow Statements, cash equivalents are short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value. 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. Examples include treasury bills, commercial papers, and money market funds with short maturity periods.