Cash and Cash Equivalents

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PRACTICE SET

Cash and Cash Equivalents

1. A company’s records reveal the following data at year-end:

Commercial Paper Maturing in Four Months P1,200,000

Uncashed Tax Refund Check 550,000

Petty Cash 100,000

Certificates of Deposit 1,000,000

Balance in Union Savings and Loan Savings Account 2,500,000

Postage 50,000

Balance in United Bank Checking Account (250,000)

Treasury Notes Maturing in Six Months 2,200,000

Cash on Hand 500,000

Postdated Customer Check 125,000

Employee Travel Advance 75,000

Treasury Bill Maturing in One Month 2,500,000

What is the correct amount of cash and cash equivalents that will appear as a
current asset on Ester Co.’s balance sheet?
a. P6,050,000
b. P6,150,000
c. P6,225,000
d. P6,275,000

2. The books of ABC Co. show the following balances at December 31, 20x1:
Cash on hand ₱ 400,000
Cash in Bank – current account 1,200,000
Cash in Bank – peso savings deposit 5,000,000
Cash in Bank – dollar deposit (unrestricted) $ 100,000
Cash in Bank – dollar deposit (restricted) 250,000
Cash in 3-month money-market account ₱ 500,000
3-month unrestricted time deposit $ 20,000
Treasury bill, purchased 11/1/20x1, maturing ₱1,600,000
2/14/20x2
Treasury bond, purchased 3/1/20x1, maturing 1,000,000
2/28/20x2
Treasury note, purchased 12/1/20x1, maturing 400,000
2/28/20x2
Unused Credit Line 4,000,000
Redeemable preference shares, purchased 740,000
12/1/20x1,
due on 3/1/20x2
Treasury shares, purchased 12/1/20x1, to be 200,000
reissued on
1/5/20x2
Sinking fund 400,000

Additional information:

● Cash on hand includes a ₱40,000 check payable to ABC Co. dated December
29, 20x1.
● During December 20x0, check amounting to ₱30,000 was drawn against the
Cash in bank - current account in payment of accounts payable. The check
remains outstanding as of December 31, 20x1.
● The Cash in Bank – peso savings deposit includes ₱800,000 security bond on a
pending labor litigation, in favor of a previous employee. The establishment
of the bond is mandated by a court of law.
● The Cash in Bank – peso savings deposit also includes a compensating balance
amounting to ₱500,000 which is not legally restricted.
● The Cash in Bank – dollar deposit (unrestricted) account includes interest of
$4,000, net of tax, directly credited to ABC Co.’s account. The exchange rate
at year-end is $1 is to ₱45.

How much is the cash and cash equivalents to be reported in the 20x1 financial
statements?

a. 14,720,000
b. 19,520,000
c. 12,430,000
d. 12,870,000

ANSWERS AND SOLUTION:

1. Company’s

Uncashed Tax Refund Check 550,000

Petty Cash 100,000

Balance in Union Savings and Loan Savings Account 2,500,000

Cash on Hand 500,000

Treasury Bill Maturing in One Month 2,500,000

6,150,000
A. Commercial Paper Maturing in Four Months
Would not qualify Cash Equivalents (PAS 7.6)

- Short term
- Highly liquid investments
- That are readily convertible to known amounts of cash
- Which are subject to an insignificant risk of changes in value
Only debt instruments acquired within 3 months or less before their
maturity date can qualify as cash equivalents.

Examples of Cash equivalents

● (3 Months or Less ) Date of Acquisition Before Maturity Date

- Treasury bills, notes or bonds acquired within 3 months or less before their
maturity date

Money market instrument or commercial paper acquired within 3 months or


less before their maturity date

● (3 Months or Less ) Term of the Instrument

-3 month-time deposit

B. Certificates of Deposit

Normally classified as investment

C. Postage and Employee Travel Advance

Items NOT included as Cash


● Post-dated checks
● IOUs or advances to employees
● Cash funds not available for use in current operations (e.g.
sinking fund)
● Postage stamps

D. Treasury Notes Maturing in Six Months

Only debt instruments acquired within 3 months or less before their maturity
date can qualify as cash equivalents.

E. Postdated Customer Check

Postdated Check Received From a Customer Exclude from cash

Postdated Check Drawn Include in cash

Unreleased/ Undelivered check Include in cash

Stale checks Include in cash

2. ABC Co
Cash on hand 400,000
Cash in Bank – current account 1,200,000
Cash in Bank – peso savings deposit (5,000,000 less 4,200,000
800,000 restriction)
Cash in Bank – dollar deposit (unrestricted) (100,000 4,500,000
x 45)
Cash in 3-month money-market account 500,000
3-month unrestricted time deposit (20,000 x45) 900,000
Treasury note, purchased 12/1/20x1, maturing 400,000
2/28/20x2
Redeemable preference shares, purchased 740,000
12/1/20x1, due on 3/1/20x2
Outstanding check 30,000
12,870,000

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