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A) No it can’t qualify as cash and cash equivalent because investments are usually made for long term purpose and they are equity instruments.B) Option A you are right but sometimes investors made investment for short term purpose. If the Investment is made for short term commitment it qualifies as cash and cash Equivalent. When I say short term I am saying the investment is with the intention of converting the instrument within two or three months.C) Option B you are Right to some extent, but you missed something. In addition to short term commitment there must be a readily available market that determines its cash amount. Otherwise how can you state its value in monitory terms on the financial statementD) Option C you have a nice point. But you also have forgotten to raise the risk associated with change in value. If the investment market value is volatile it is very difficult to state the monitory value on the financial statement. To be considered as cash and cash equivalents in addition to what you have said the change in value should insignificant. E) No guys I don’t have any idea in this regard
Cash includes currency on hand as well as demand deposits with banks or financial institutions. It also includes other kinds of accounts that have the general characteristics of demand deposits in that the customer may deposit additional funds at any time and also effectively may withdraw funds at any time without prior notice or penalty. Cash equivalents, excluding items classified as marketable securities, include Short-Term, highly liquid Investments that are both readily convertible to known amounts of cash, and so near their maturity that they present minimal risk of changes in value because of changes in interest rates. Generally, only investments with original maturities of three months or less qualify under that definition. Original maturity means original maturity to the entity holding the investment. For example, both a three-month US Treasury bill and a three-year Treasury note purchased three months from maturity qualify as cash equivalents. However, a Treasury note purchased three years ago does not become a cash equivalent when its remaining maturity is three months. Short-term investments, exclusive of cash equivalents, are marketable securities intended to be sold within one year (or the normal operating cycle if longer) and include trading securities, available-for-sale securities, and held-to-maturity securities (if maturing within one year).
