POST DATED CHEQUE UNDER IAS 37 QUESTION

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Ishfaqkhan1122
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POST DATED CHEQUE UNDER IAS 37 QUESTION

Post by Ishfaqkhan1122 »

Hi,

If we receive post dated check from customer can we show it as contingent asset before the date of maturity .
e,g we received the check against sales on march 31 2021 dated June 30,2021 and we close our books of account on march 31,2021
shall i show the check as contingent asset on march 31, 2021.
Thanks
JRSB
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Re: POST DATED CHEQUE UNDER IAS 37 QUESTION

Post by JRSB »

I'd say a reconciling item on the bank. Do you have knowledge that there are no funds for the cheque to be drawn against?
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Marek Muc
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Re: POST DATED CHEQUE UNDER IAS 37 QUESTION

Post by Marek Muc »

do you still use cheques in the UK? I don't even now how they work :lol:

but I doubt they fall under the scope of IAS 37
JRSB
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Re: POST DATED CHEQUE UNDER IAS 37 QUESTION

Post by JRSB »

yes we do. apparently we invented the modern 'cheque' in the 1700s so can't bear to see them go.
DJP
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Re: POST DATED CHEQUE UNDER IAS 37 QUESTION

Post by DJP »

I would show this as a bill receivable. 3 months seems too long to be a simple reconciling item on the bank.
JRSB
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Re: POST DATED CHEQUE UNDER IAS 37 QUESTION

Post by JRSB »

still within 'cash equivalents' though?
DJP
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Re: POST DATED CHEQUE UNDER IAS 37 QUESTION

Post by DJP »

mmm....not sure about that. Bills receivable are usually reported under trade and bills receivable. A cash equivalent is defined as an "investment" blablabla, but in this case you are not "investing" in the bills receivable. You are receiving this financial asset in return for the provision of a service. If this was a short-dated cheque, yes, I think i would include this just as a reconciling item within cash equivalents. But given that it has a "maturity" of 3 months, I would be a bit reluctant in doing so. This is kind of similar to a letter of credit in a way. Presumably you can even go and discount it at the bank before maturity? Bottom line, I think I would presented it as a bill receivable.
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Re: POST DATED CHEQUE UNDER IAS 37 QUESTION

Post by JRSB »

it's equivalent to a 3-month term deposit...
DJP
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Re: POST DATED CHEQUE UNDER IAS 37 QUESTION

Post by DJP »

Not quite. A 3-month deposit is a financial asset that you acquire. Basically an investment that meets the requirements in IAS 7.7

The cheque in this example is a financial asset that you receive in turn for the provision of services or the sale of goods. It is a receivable. Otherwise an Accounts Receivable could also classify as a cash equivalent.

The way I see it, by accepting a pre-dated cheque the company is selling on credit. If the company were to recognise the cheque as a cash equivalent, it would recognise a cash inflow immediately. Yet, the cash inflow will only occur three months later.
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