Current Investment is a part of which of the following activities?

Cash and Cash equivalents

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

Current investments are considered part of cash and cash equivalents because they are highly liquid and are easily convertible into a known amount of cash.

The cash flow statement presents the cash inflows and outflows, including cash and cash equivalents, from various activities of a business over a specific period. According to Accounting Standard 3 (AS-3), 'Cash' encompasses physical cash on hand and demand deposits held in banks. 'Cash equivalents' refer to short-term, highly liquid investments that can be quickly converted into known amounts of cash with minimal risk of value fluctuations. Typically, an investment qualifies as a cash equivalent when it has a short maturity period, often three months or less from the acquisition date. Investments in stocks are not considered cash equivalents, unless they meet specific criteria. For instance, preference shares that are acquired shortly before their scheduled redemption date, provided there's minimal risk of the company failing to repay the amount upon maturity, can be treated as cash equivalents. Similarly, short-term marketable securities that can be readily converted into cash without significant changes in their value are also considered cash equivalents. These investments must be highly liquid and easily convertible into cash.