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Z Ltd. takes a security deposit of ₹10,000 from each dealer, refundable with 8% p.a. interest only when the dealer contract terminates; damages to containers may be adjusted against the deposit. In the dealer's books, this deposit is:
AA financial asset, because the dealer has a contractual right to receive cash on contract termination
BA prepaid expense and therefore outside the scope of Ind AS 32
CAn equity-like contribution to Z Ltd. since it is non-current
DNot a financial asset, because refund is contingent on the condition of containers returned
Answer & Solution
Correct answer: A. A financial asset, because the dealer has a contractual right to receive cash on contract termination
The deposit creates a contractual right to receive cash at the end of the contract — a financial asset under the "contractual right to receive cash" limb of Ind AS 32. Possible adjustments for damages do not negate the contractual right; they only affect measurement. Even contingent rights to receive cash meet the financial-asset definition.
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