Term Deposit

[Chavi]

When you receive the term deposit back, how is it classified in the cash flow statement?

My guess would be Financing Inflow - but it may be classified as a NCA - making it an investing activity - or it may be a day-to-day trading activity making it operating.

So, which is the correct answer?

(side note: 500 posts  )

[eeps]

This is a tricky question, though unlikely to be on the exam...

My answer would be Financing Inflow. By definition, Investing Activities is the selling/purchase of NCAs, while Operating Activities is what you've pointed out. I think Financing Activities is where you would have to put the Term Deposit (received) in Cash Flow Statement.

In short, your first answer would be correct.

[aposta28]

Financing Activities.

Popped up in an exam i did, forget which one
but logically speaking, Financing Activities sounds right

[Chavi]

Thanks guys, I guess my suspicions proved correct   (@Aposta28 - this question I came across in Compaq 2010). I guess Term Deposits are kinda on their own - not Loans or capital contributions - but money set aside to earn interest. Not sure if they 'change the financial structure of the firm' per se, but I guess they don't fall into any of the other categories.

[lilaznkev1n]

Hmm..not not completely sure but I thought it would be recorded as an Investing Activity Inflow.
Since Investing Activities involve the sale and purchase of Non-Current assets and the term deposit is recorded as a non-current asset as it is a resource controlled by the entity (as a result of a past event) from which future economic benefits are expected in the form of cash when the term deposit is payed back sometime after the next 12 months.

Then again, it might be financing activities, I'm not completely sure though....or maybe because when i think of accrued revenues like term deposit and investment accounts and the word investing gets stuck into my mind...
I've never seen this appear in an exam before...I did Compaq 2010 but didn't see this question...

[sam.utute]

Hmm..not not completely sure but I thought it would be recorded as an Investing Activity Inflow.
Since Investing Activities involve the sale and purchase of Non-Current assets and the term deposit is recorded as a non-current asset as it is a resource controlled by the entity (as a result of a past event) from which future economic benefits are expected in the form of cash when the term deposit is payed back sometime after the next 12 months.

Then again, it might be financing activities, I'm not completely sure though....
I've never seen this appear in an exam before...I did Compaq 2010 but didn't see this question...

I just checked the Compak 2010 exam, and the question is not there. 1.3.3 only asks you to categorise the interest revenue and accured interest revenue. I agree with lilaznke1n. I would definitely put this in Investing Activities, because logic requires me to do so.

[Stormer]

Investing inflows. That's what my teacher has got it as?

[Chavi]

@lilaznkev1n - the only problem with that reasoning, is that the owner can take out 6 month or 9 month term deposits (so they effectively become CA). Also, when the deposit is being repayed it is already classified as a current asset (as you expect repayment within 12 months). I see where you're coming from, and although the deposit is an "investment" - I don't think that it is classified as a NCA per se - so I'm not to sure if it's as investing activity.
Investing Activity - cash flows relating to the sale and/or purchase of a NCA.

@asap531 - I rechecked Compaq 2010 - it turns out that I misread the question - however, it would still be interesting to find out what a term deposit is actually classified as.

[eeps]

I think this debate can be put on hold till Thursday, sometime after 1:30 pm - when we finish the exam. I'd think people would be more interested in the post-exam discussion than whether a Term Deposit is a Financing/Investing Activity. I'd doubt this question would ever come up on the exam... if it did... it would be a massive surprise. =P

And anyhow, what would it matter from Thursday onwards... no more Accounting EVER! - that's unless you're planning to repeat Accounting or do Accounting in Uni.

GOOD LUCK TO EVERYONE FOR THURSDAY - give thy exam your best possible shot and anything is possible! HAVE NO REGRETS - you've study hard all year for this moment. I HOPE EVERYONE GETS THE SCORE THAT THEY WANT! (I thought I'd get this out of way, since everyone will be doing it on Wednesday night, before the day of the exam.)

[aposta28]

My teacher just said Operating inflow....

[davyp3]

I think it would be financing.

think of it this way, you pay back a loan, its considered as financing.

so why wouldnt a LOAN that you have given to the bank be considered as financing?

isnt it the same principle?

[aposta28]

Me:  Just one final question Ms,
   When you receive back a term deposit
      What would it be classified as
      investing? but it really doesnt sound logical
      or is it Financial?
     

   Teacher:- Hmmm....an interesting question. It is a cash flow back into the business but is not an NCA , therefore not investing. Also it is not Financing. So as a matter of deduction, it can only fall under operating inlow along with interest received. (2 hours ago | Edit | Delete)

[davyp3]

I am confused right now

EMAIL:

From: David [[email protected]]
Sent: Sunday, 31 October 2010 11:43 PM
To: Neville; Vicki Baron
Subject:

When you receive the amount invested from a Term Deposit at the end of the investment term, is the cash flow considered as Operating/Investing/Financing?
RESPONSE:

Investing
 
Regards
 
Vicki Baron
Head of Commerce
Haileybury
9213 2240
[email protected]

[JinXi]

Term Deposits are Investing Activities. It's an amount Invested by the Firm.

Edit : And Financing only Relates to things that changes the financial structure of the firm, Eg NCL/Owner's Equity, while Term Deposits are by no means a Day to Day activity.

[Phenotype]

It's an Investing activity, as the Term Deposit is a Non Current Asset that produces revenue. Investing in a Term Deposit = Investing activity; it does not in any way change the financial situation of the firm, as this amount is not being "borrowed" and "needing to be paid back". It's not a loan