No Maturity Deposit (Non Current Financial Asset)

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raju2022
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No Maturity Deposit (Non Current Financial Asset)

Post by raju2022 »

XYZ company has made a deposit, which has no maturity. Like, deposits can't be withdrawn, unlike and unless business can be discontinued. 
Then, what should be the treatment for deposits under IFRS 9? Currently, it has been classified as non-current financial assets. Should it be presented at the same deposited amount or anything else?
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Marek Muc
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Re: No Maturity Deposit (Non Current Financial Asset)

Post by Marek Muc »

What is the business rationale for making such a deposit?
JRSB
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Re: No Maturity Deposit (Non Current Financial Asset)

Post by JRSB »

:lol: not the most attractive investment! Presumably required by government or counterparty as part of a contract but interested to hear!
raju2022
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Re: No Maturity Deposit (Non Current Financial Asset)

Post by raju2022 »

The company's nature is to import goods from other countries and trade in domestic markets. To obtain an import license, it should be required to make a refundable deposit to the Customs Department. A refund would only happen if a company discontinued their operations in the future or the customs department ceased their importing licenses. 
It seems that operations of the company will run in the foreseeable future, so the maturity of such a deposit can't be ascertained.
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Marek Muc
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Re: No Maturity Deposit (Non Current Financial Asset)

Post by Marek Muc »

I see, I'd say this is not a financial asset within the scope of IFRS 9 because it isn't contractual. It's more like a levy.
My first thought is to recognise this as an intangible asset at cost (i.e. cash paid) under IAS 38 and present it as other assets in the statement of financial position.
DJP
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Re: No Maturity Deposit (Non Current Financial Asset)

Post by DJP »

Hi all,

A few comments.

1) The question is about whether this is a current or non-current asset. Current and non-current classification is dealt by IAS 1, not IFRS 9.

2) How to classify this deposit on the balance sheet? You will need to understand if (a) this deposit is on demand with restrictions (e.g. the entity can move the cash but it will be subject to penalties because of a contractual breach) or (b) the deposit cannot be accessed at all by the entity. If (a), then it should be reported as cash, but classified as non-current (as I am assuming that it cannot be used within 12 months from the reporting period), with specific disclosures in the notes. If (b), it should be reported as "other asset" because it fails the definition of cash and cash equivalent; it should also be reported as non-current.
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Re: No Maturity Deposit (Non Current Financial Asset)

Post by JRSB »

Presumably it is accessible/liquid very quickly, simply by surrendering the licence.
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Marek Muc
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Re: No Maturity Deposit (Non Current Financial Asset)

Post by Marek Muc »

I doubt that this would work like a 'demand deposit' in the meaning of 'cash' as per IAS 7. It's a pity that IAS 7 doesn't define 'demand deposits', but I would read it as an arrangement where funds can be withdrawn without any notice.
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Re: No Maturity Deposit (Non Current Financial Asset)

Post by DJP »

The IFRIC as discussed a similar case recently.
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Marek Muc
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Re: No Maturity Deposit (Non Current Financial Asset)

Post by Marek Muc »

this one:
https://www.ifrs.org/content/dam/ifrs/s ... r-2022.pdf

But in the IFRIC scenario, the entity has access to deposited cash on demand (unlike the one that we're discussing)
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Re: No Maturity Deposit (Non Current Financial Asset)

Post by JRSB »

If not cash, could still be 'cash and cash equivalents' for cash flow purposes perhaps.
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Re: No Maturity Deposit (Non Current Financial Asset)

Post by DJP »

We don't know yet if the cash can be accessed or not. Question remains to be answered. Unlikely to be cash equivalent as the purpose of the deposit is not to meet short-term cash commitments.
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Re: No Maturity Deposit (Non Current Financial Asset)

Post by Marek Muc »

it's true that we don't know for sure, but do you really believe that the governmental customs department would pay back the cash collateral on demand? ;) if this worked that way, it wouldn't make sense to ask for this deposit in the first place!
I agree that this cannot be considered to be cash equivalent due to the purpose of the deposit
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Re: No Maturity Deposit (Non Current Financial Asset)

Post by DJP »

You may just incur in a penalty (e.g. lose licence) if you withdraw the cash, but if the account is controlled by the entity, this is a possible scenario.
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Re: No Maturity Deposit (Non Current Financial Asset)

Post by Marek Muc »

ok I see what you mean, so this would look like the IFRIC scenario

let's wait then for OP to provide us with more details :)
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Marek Muc
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Re: No Maturity Deposit (Non Current Financial Asset)

Post by Marek Muc »

PS. I added this to the knowledge base!
https://ifrscommunity.com/knowledge-bas ... ons-of-use
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Re: No Maturity Deposit (Non Current Financial Asset)

Post by JRSB »

Yes I see this occasionally that cash is held on deposit by the entity in question, ringfenced, but completely accessible, albeit to withdraw would be to breach some condition of another contract, albeit the cash is immediately accessible to spend. This is in construction projects where local government wants to make sure the entity has cash for overrun costs where constructing public infrastructure. Don't want to go bust with half a bridge.
raju2022
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Re: No Maturity Deposit (Non Current Financial Asset)

Post by raju2022 »

Should it be concluded, after disclosing the purpose and facts in the notes, that such deposits could be classified as other assets?
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Marek Muc
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Re: No Maturity Deposit (Non Current Financial Asset)

Post by Marek Muc »

not yet, we're waiting for some additional info from you (see the preceding posts)
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