Cash and cash equivalents

Introduction & scope

This chapter deals with the accounting for cash & cash equivalents and the gain or loss related to the revaluation of cash & cash equivalents in foreign currencies.

Cash and cash equivalents include:

• petty cash in main and other cash register postal accounts
• bank accounts with a debt balance including money in transit from other Group entities call money
• money market investments (with an original maturity of 3 months in maximum plus meeting the definition of cash equivalents as described below).
• time deposits (with an original maturity of 3 months in maximum plus meeting the definition of cash equivalents as described below).

It does not deal with the accounting for derivative assets or liabilities and the hedge accounting.

IFRS Reference

Definition

Cash comprises cash on hand and demand deposits. This includes cash held in local and in foreign currencies and cash held in postal and bank accounts domestically and abroad (current deposits and savings accounts).

Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Cash equivalents are held for the purpose of meeting short-term cash commitments rather than for investment or other purposes. For an investment to qualify as a cash equivalent it must be readily convertible to a known amount of cash and be subject to an insignificant risk of changes in value. It has a maturity of three months or less from the date of acquisition. Equity securities generally do not qualify as cash equivalents.

The term readily convertible implies that the investment would be convertible into cash without an undue period of notice and without incurring a significant penalty on withdrawal.

In order to meet the definition of cash equivalents, an investment will normally have to have a short maturity. A short maturity period would be a period of three months or less from the date of acquisition of the investment. The use of a short maturity period when considering investments as cash equivalents incorporates the fact that the investments should be so near to cash that there is insignificant risk of changes in value.

Recognition and measurement

Initial recognition For Cash, as well as for money market investments and time deposits, initial recognition will be at fair value, which is normally the transaction price, that is, the fair value of the consideration given or received cost. Measurement Cash on hand and deposits are valued at face (nominal) value. Securities with an original maturity of three months and less are valued at current market price. Securities that are transferred to non-current assets are to be valued at their current market price at the time of transfer. Gains and losses have to be recorded in the statement of profit or loss. Subsequent measurement Cash on hand and deposits in foreign currencies are valued monthly at the exchange rate published by the Consolidation & Reporting Team. Profit and loss due to changes in the exchange rate have to be recognized in the statement of profit or loss. For Securities, gains and losses resulting from market valuation are to be recorded in the statement of profit or loss.