An investment qualifies as ‘Cash Equivalents’ only when it has a short maturity of:

Correct option is C

As per AS-3 (Revised): Cash Flow Statements, an investment can be classified as a Cash Equivalent only if it meets all of the following conditions:
1. It is readily convertible into a known amount of cash.
2. It is subject to an insignificant risk of change in value.
3. It has a short maturity of three months or less from the date of acquisition.
Hence, the maturity period must not exceed three months, ensuring high liquidity and minimal risk. Examples include Treasury Bills, Money Market Instruments, and short-term deposits maturing within three months.
Therefore, the correct answer is (c) Three months or less.
Information Booster
1. Cash equivalents are shown under Cash and Cash Equivalents in the balance sheet.
2. They help in assessing the company’s short-term liquidity position.
3. Cash equivalents exclude long-term or risk-bearing investments.
4. The key features are high liquidity, low risk, and very short maturity.
5. AS-3 provides strict criteria to prevent misclassification of long-term investments as cash equivalents.