Accountancy Part BCash Flow Statement

A current investment with a maturity of three months or less from the…

A current investment with a maturity of three months or less from the date of acquisition is a part of which of the following?

Answer & explanation

Correct answer: option 4

The correct answer is Option (4) → Cash and Cash equivalents

An investment with a short maturity of three months or less from the date of acquisition is readily convertible into cash, so AS-3 treats it as a cash equivalent.

Option (1) Operating Activities — Incorrect. Operating activities are the principal revenue-producing activities, not investments.

Option (2) Investing Activities — Incorrect. Investing activities cover investments not included in cash equivalents.

Option (3) Financing Activities — Incorrect. Financing activities change the owners’ capital and borrowings.

NCERT (2026-27 edition):
Cash and Cash Equivalents – “… As per AS-3, ‘Cash’ comprises cash in hand and demand deposits with banks, and ‘Cash equivalents’ means 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 cash equivalents only when it has a short maturity, of say, three months or less from the date of acquisition.”