Cash equivalents include :

(A) Commercial paper issue by a company
(B) Marketable Securities
(C) Demand deposit
(D) Cash in hand
(E) Investment in shares

Choose the correct answer from the options given below :

(B), (C) and (D) only

The correct answer is Option (4) - (B), (C) and (D) only.

Cash equivalents include Marketable Securities, Demand deposit, Cash in hand.

Cash equivalents are short-term, highly liquid assets that can be easily converted into known amounts of cash and carry insignificant risk of change in value.

• (B) Marketable Securities → These are short-term, easily saleable investments and hence treated as cash equivalents.

• (C) Demand Deposit → These can be withdrawn on demand (like bank balance), so they are treated as cash.

• (D) Cash in hand → This is actual cash, so it is included.

Why the others are excluded:

• (A) Commercial Paper: While often highly liquid, Commercial Paper is generally treated as a Short-term Investment or an operating/financing item depending on its maturity.

• (E) Investment in Shares: These are never considered cash equivalents. The value of shares fluctuates constantly (high risk of change in value), and there is no guarantee of a "known amount of cash" upon conversion.

NCERT: 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.