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Q.What will be effect of 'Purchase of Marketable Securities for Cash' on Cash Flow Statement ? (A) No effect (B) Inflow from financing activities (C) Outflow from investing activities (D) Outflow from financing activities

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Marketable securities are treated as cash equivalents, so buying them for cash is only a movement between components of cash and cash equivalents and has no effect on the Cash Flow Statement. The correct option is (A).

Under AS-3, 'Cash and Cash Equivalents' includes cash in hand, demand deposits, and short-term highly liquid investments that are readily convertible into known amounts of cash and are subject to insignificant risk of change in value. Marketable securities held for short-term purposes fall within this definition of cash equivalents. …

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