What is Restricted Assets?
Restricted assets are resources whose use is constrained by external parties or contractual obligations, distinguishing them from assets available for general business purposes. Examples include cash collateral on bank guarantees, escrow balances, debt service reserve accounts, donor-restricted funds in non-profits, and assets pledged as security for borrowings.
How It Works
- Identify the restriction (lender covenant, escrow agreement, donor designation, court order).
- Disclose restricted balances separately from unrestricted assets.
- Classify as current or non-current based on the expected period of restriction.
- Do not include restricted cash in the cash and cash equivalents line of the cash flow statement.
- Disclose the nature, amount, and timing of expected release.
Saudi Context
Saudi banks routinely require cash collateral for letters of guarantee and letters of credit, creating restricted bank balances on the customer’s balance sheet. CMA-regulated REITs hold escrow accounts for unit-holder protection. Construction contractors often hold retention money receivable as restricted assets until projects are accepted. ZATCA may freeze accounts during tax disputes.
Example
A contractor’s SAR 2 million bank balance includes SAR 500,000 of cash collateral pledged against a performance bond. The financial statements disclose: cash and cash equivalents SAR 1.5m, restricted cash SAR 0.5m, with a note explaining the pledge will be released upon project completion in 14 months (non-current classification).