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Gentlemen Ltd needs additional working capital for business expansion and a quick way to raise funds is to obtain additional overdraft facilities from its banker,

Gentlemen Ltd needs additional working capital for business expansion

and a quick way to raise funds is to obtain additional overdraft facilities

from its banker, the Rich Bank. In connection with this, the banker

required the company to pledge its fixed deposits ($5 million) a s

collateral for the additional banking facilities. Gentlemen Ltd will not

be able to cancel/withdraw the fixed deposits as long as the company is

using the additional overdraft facility.

Required:

Explain whether Gentlemen Ltd should include the fixed deposits as

part of cash and cash equivalents in accordance with HKAS 7. How

should they be included in the statement of cash flows?

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