Under Which Section Of The Balance Sheet Is "Cash Restricted For Plant Expansion'' Reported

The correct option is b), as cash restricted for plant expansion, which is a long-term project as plant is a Non Current Asset or Fixed Asset, is specifically assigned and hold for more than one year. The cash is specifically restricted to plant expansion and it is not available to use for operating, investing and financing activities. Such cash must be distinguished from cash used for immediate needs such as used in operations to meet daily expenses to run the business effectively.

Cash restricted for special purpose and not utilized for more than one year is categorized under Non Current Assets on Balance Sheet. On balance sheet, it must be distinguished from other cash used for immediate use or daily operations.

Cash is a Current Asset but restricted cash can be a current asset (to be used within one year or one year) or Non current assets (not available for using more than one year). During the period of restriction, the cash is utilized only for that special project for which it was set aside.

A business needs to restrict cash for special purposes so that the funds are available to meet such purposes i.e., for repayment of long-term loans, for Capital Expenditures such as for plant expansion, purchase or development of new asset, etc.

Restricted cash and equivalents must be separately recorded on balance sheet. Once the restriction on cash is lifted it will be added back to cash account used for business operations.

A company is required to disclose about restricted cash on Notes to the Accounts in order to make a clear understanding of its financial position and financial health to Users of Accounting Information. It ensures true and fair view of financial statements among stakeholders such as investors, creditors, etc.

Due to the restriction on cash, the company can easily allocate funds for its long-term projects. The company can better know which cash is used for normal business operation and which part of cash is specially set aside for different long-term projects. For repayment of long-term loans, the financial institutions have trust on the company to pay back the loan due to specialized funds allocated for this purpose. This ensures to these institutions that the company is capable to pay its financial obligations and debts on time. This leads to creditworthiness of company in the minds of lenders and creditors and builds a strong relationship among the company and lenders and creditors.

Due to the restriction on cash, the company reduces the chances of risks i.e., may be misallocation of funds make impossible for the company to pay back the long-term loan in time as it is possible that the more funds are utilized for other purposes than the one specified and hence the long-term loan remains due for more several years and exceeds the time frame set for it i.e., $50,000,000 long term loan should be paid within 3 years may be extended to 5 years due to insufficient funds as funds are not set for repayment of long-term loan and utilized in other activities like in business operations.

When there is restriction on cash, then the company may face difficulties in running its business operations which may result in heavy losses. So, the company must ensure that it has sufficient cash for meeting daily business expense in order to run the business smoothly. After ensuring that, it can restrict cash for special project.

The other options are irrelevant and are wrong choices for this multiple choice question.