Concept explainers
Under what two conditions should investments be classified as current assets?
Concept Introduction:
Investments are classified into short term investments and long term investments according to the period of holding the investment. A short term investment is held for a period of less than one year. A long term investment is held for a period of more than one year.
To indicate: two conditions to classify an investment as current asset.
Explanation of Solution
Investments are classified into short term investments and long term investments according to the period of holding the investment. An investment can be classified as a current asset if the following two conditions are satisfied:
1. The investment should be a short term investment, i.e. the holding period of the investment should be less than one year.
2. The investment should easily convertible into cash. For example short term investment in trading securities.
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