Question

Question

A. Cash is a monetary and financial asset. It is the most liquid finance asset; it is also the standard medium of exchange for most business transactions. Cash is usually classified as a current account, however there are circumstances in which cash is classified as a non-current asset.

Required:

With the aid of a suitable example, explain when can be classified as a non-current asset.

Answer 1

Ofcourse, the given statement is true. The appropriate definition for current asset is, 'Those assets which can be converted into cash within an operating cycle or within a period of one year". When we look at the definition we could interpret that cash has the nature stipulated. But there are some circumstances in which the cash is classified as non-current asset. Some of such circumstances are:

1. The cash in hand has some financial commitments like payment of taxation, depreciation, etc.

2. The business has some proposals for which additional capital is required.

3. The business feels that raising capital through any other source is very difficult.

In the above circumstances and circumstances similar to the above the liquidity nature of cash is a question mark. Eventhough the cash is readily available it is not possible to make use of it.