20 AS
Cash and Cash Equivalents
6. Cash equivalents are held for the purpose of meeting short-term cas
commitments rather than for investment or other purposes. For an investment
to qualify as a cash equivalent, it must be readily convertible to a know
amount of cash and be subject to an insignificant risk of changes in value
Therefore, an investment normally qualifies as a cash equivalent only whe
it has a short maturity of, say, three months or less from the date of acquisition
Investments in shares are excluded from cash equivalents unless they are, i
substance, cash equivalents; for example, preference shares of a compan
acquired shortly before their specified redemption date (provided there i
only an insignificant risk of failure of the company to repay the amount a
maturity).
7. Cash flows exclude movements
etween items that constitute cash o
cash equivalents because these components are part of the cash management
of an enterprise rather than part of its operating, investing and financin
activities. Cash management includes the investment of excess cash in cas
equivalents.
Presentation of a Cash Flow Statement
8. The cash flow statement should report cash flows during the
erio
classified by operating, investing and financing activities.
9. An enterprise presents its cash flows from operating, investing and
financing activities in a manner which is most appropriate to its
usiness
Classification by activity provides information that allows users to assess th
impact of those activities on the financial position of the enterprise and th
amount of its cash and cash equivalents. This information may also be use
to evaluate the relationships among those activities.
10. A single transaction may include cash flows that are classified
differently. For example, when the instalment paid in respect of a fixed asse
acquired on deferred payment basis includes both interest and loan, the interes
element is classified under financing activities and the loan element i
classified under investing activities.
Operatin
Activities
11. The amount of cash flows arising from operating activities is a ke
indicator of the extent to which the operations of the enterprise have generate
sufficient cash flows to maintain the operatin
capabilit
of the enterprise