Consider the following assets: (I) An investment in the shares of a company that is publicly...

Consider the following assets:
(I) An investment in the shares of a company that is publicly traded on a Canadian stock exchange.
(II) An investment in a Government of Canada treasury bill, which matures in nine months.
(III) Funds held in a chequing account at the bank.
Which of the following would be classified as a short-term investment on the statement of financial position?

I, II and III

I and II

I and III

II and III

Expert Solution

The answer for the question is b (i.e., I & II), subject to an assumption that the investor invested in the shares of a listed company with an intention to resell within 12 months.

The investment shall be differentiated as Long term or short term investment basing on the intention of the investor with respect to period of holding. If the Investment is made with an intention to hold for a period of more than 12 months then such investment can be recognised as longterm investment and if the period of maturity doesnot exceed 12 months but above 3 months then, it shall be recognised as a short term investment otherwise it should be classified as cash and cash equivalents.

In the given question the investment in listed shares has been assumed that the investor is intended to hold it for less than 12 months, due which it shall be classified under short term investment. And investment in Canada treasury bills is going to mature within 9 months which is within a year, due to which it should be recognised as Short term investment.

Whereas funds in a chequing account at the bank is readily available for the investor to utilise at anytime during the period and it is highly liquid in nature and shall be classified as cash and cash equivalents.

Therefore, if an Investment going to mature

a. after 12 months then it should be classified as Long term investent,

b. within 12 months but more than 3 months then it should be classified as Short term investment and

c. within 3 months then it should be classified as cash and cash equivalents.

PS: Please use "thumbs up" if you are contended with my explanation.

ekkarill92 answered 1 year ago

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