CASH AND CASH EQUIVALENTS
DISCUSSION – PART 1
FAR 2 • A.Y. 2020 – 2021, 1ST SEMESTER
CASH
- INCLUDES MONEY AND OTHER NEGOTIABLE INSTRUMENTS
THAT ARE PAYABLE IN MONEY AND ACCEPTABLE BY BANK
FOR DEPOSIT AND IMMEDIATE CREDIT.
- THIS SHOULD BE UNRESTRICTED OR MUST BE READILY
AVAILABLE IN THE PAYMENT OF CURRENT OBLIGATIONS
AND NOT BE SUBJECT TO ANY RESTRICTIONS,
CONTRACTUAL OR OTHERWISE.
UNRESTRICTED
- IT CAN BE USED BY THE COMPANY TO WHATEVER
TRANSACTION THE COMPANY WANTS TO USE IT.
- CASH IS RESERVED TO SETTLE CURRENT PURPOSE SUCH AS:
- CURRENT OBLIGATION
- OPERATING EXPENSES
CASH
- CASH IS MEASURED AT FACE VALUE.
- CASH IN FOREIGN CURRENCY IS MEASURED AT CURRENT
EXCHANGE RATE (BALANCE SHEET DATE)
- THIS INCLUDES CASH ON HAND, CASH IN BANK AND CASH
FUNDS.
CASH EQUIVALENTS
- THESE ARE SHORT- TERM AND HIGHLY – LIQUID
INVESTMENTS THAT ARE READILY CONVERTIBLE INTO CASH
AND SO NEAR THEIR MATURITY THAT THEY PRESENT
INSIGNIFICANT RISK OF CHANGES IN VALUE BECAUSE OF
CHANGES IN INTEREST RATES. (PAS 7, PAR 6)
CASH EQUIVALENTS
- THESE INCLUDE TIME DEPOSIT/ COMMERCIAL PAPER,
TREASURY BILL/NOTE, MONEY MARKET PLACEMENT/
INSTRUMENT AND REDEEMABLE PREFERENCE SHARES.
- THESE SHOULD ENCOMPASS THOSE THAT ARE ACQUIRED 3
MONTHS OR LESS BEFORE ITS MATURITY.
PROBLEM I
THE CONTROLLER FOR GOOFY COMPANY IS ATTEMPTING TO
DETERMINE THE AMOUNT OF CASH AND CASH EQUIVALENTS
TO BE REPORTED ON THE DECEMBER 31, 2012 BALANCE
SHEET. THE FOLLOWING ITEMS ARE INCLUDED IN THE CASH
AND CASH EQUIVALENT ITEMS OF GOOFY COMPANY:
COINS AND CURRENCIES – 10,000
UNDEPOSITED COLLECTIONS – 5,000
CASHIER’S CHECK – 8,000
MANAGER’S CHECK – 4,000
TRAVELER’S CHECK – 3,000
BANK DRAFTS – 11,000
POSTAL MONEY ORDER – 4,000
DEMAND DEPOSIT, ABC BANK – 25,000
DEMAND DEPOSIT, AAA BANK, CLOSED BY BSP – 10,000
CHECKING ACCOUNT, DEF BANK – 140,000
CHECKING ACCOUNT IN A CLOSED BANK – 5,000
SAVINGS DEPOSIT, GHI BANK (UNDER BANKRUPTCY) – 50,000
FOREIGN CURRENCY ACCOUNT, JKL BANK - $ 5,000 ($1 = P 50
AT 12/31/12)
FOREIGN CURRENCY ACCOUNT, MNO BANK – RESTRICTED - $
3,000
PETTY CASH FUND – 3,000
CONTINGENT FUND – 8,000
VAT ACCOUNT FUND – 2,500
CHANGE FUND – 6,000
INSURANCE FUND – 250,000
PAYROLL FUND – 300,000
PPE ACQUISITION FUND – 400,000
DIVIDEND FUND – 100,000
PENSION FUND – 200,000
SINKING FUND – 400,000
INTEREST FUND – 10,000
INCOME TAX FUND – 80,000
BPO SPECIAL CHECKING ACCOUNT USED FOR PAYROLL
PAYMENTS – 150,000
BDI SPECIAL CHECKING ACCOUNT USED AS BOND SINKING
FUND, NOT MATURING CURRENTLY – 45,000
CURRENT ACCOUNT, YYY BANK – (10,000)
BILLS AND COINS ON HAND – 18,000
BBB, US –DOLLAR DENOMINATED DEPOSIT (OPENED IN OCT.
17) – EXCHANGE RATE ON OCT 17 WAS P 40; AVERAGE (OCT 17
– DEC 31) WAS P 51; DEC. 31 WAS P50. - $ 1,000
1 – YEAR TREASURY NOTE, MATURITY DATE JAN 31, 2013 –
10,000
1 – YEAR TREASURY BILL, MATURITY DATE ON JAN. 31, 2013
(ACQUIRED NOV. 28, 2012) – 12,000
TIME DEPOSIT WITH MATURITY OF 3 MONTHS – 100,000
COMMERCIAL PAPER WITH MATURITY OF 6 MONTHS – 800,000
TIME DEPOSIT, 1 YEAR – 900,000
MONEY MARKET PLACEMENT, ACQUIRED 3 MONTHS BEF.
MATURITY – 8,000
EQUITY SECURITIES OF CCC COMPANY – 40,000
LISTED COMMON SHARES OF DDD COMPANY – 90,000
REDEEMABLE PREFERENCE SHARES, 3 MONTHS BEF.
MATURITY – 11,000
SAVINGS DEPOSIT IN A BANK UNDER FINANCIAL DIFFICULTY
– 80,000 (RECOVERABLE AMOUNT IS AT MOST 80%)
BANK DRAFT – (10,000)
CHECKING ACCOUNTS IN LBP:
CA-000-111 P 600,000
CA-000-112 (250,000) 350,000
BANK DRAFT, IMMATERIAL – (250)
BANK OVERDRAFT , REPAYABLE ON DEMAND THAT FORMS
PART OF ENTITY’S CASH MANAGEMENT – (10,000)
JJJ BANK ACCOUNT, INCLUDES 100,000 LEGALLY RESTRICTED
COMPENSATING BALANCE, CURRENT– 1,000,000
VVV BANK ACCOUNT, INCLUDES 10,000 NOT LEGALLY
RESTRICTED COMPENSATING BALANCE – 150,000
QQQ BANK ACCOUNT, INCLUDES 80,000 LEGALLY
RESTRICTED COMPENSATING BALANCE, LONG-TERM –
500,000
XYZ BANK ACCOUNT, INCLUDES 50,000 COMPENSATING
BALANCE FOR A GUARANTEED LINE OF CREDIT – 300,000
WWW ACCOUNT, INCLUDES 65,000 COMPENSATING BALANCE
IN RELATION TO A LOAN ARRANGEMENT – 450,000
POSTAGE STAMPS – 3,000
TRAVEL ADVANCES – 5,000
CREDIT MEMOS – 14,000
IOU OF AN EMPLOYEE – 3,000
CASH SURRENDER VALUE – 95,000
QUESTIONS:
TOTAL CASH
TOTAL CASH EQUIVALENT
TOTAL CASH AND CASH EQUIVALENT
PROBLEM II
NEW YORK CORPORATION’S CHECKBOOK BALANCE ON
DECEMBER 31, 2015 WAS 160,000. ON THE SAME DATE, NEW
YORK HELD THE FOLLOWING ITEMS IN THE SAFE:
A. A 5,000 CHECK PAYABLE TO NEW YORK, DATED JANUARY 2,
2016, WAS NOT INCLUDED IN THE ABOVE CHECKBOOK
BALANCE.
B. A 3,500 CHECK PAYABLE TO NEW YORK WAS DEPOSITED
DECEMBER 19 AND INCLUDED IN THE ABOVE CHECKBOOK
BALANCE. IT WAS RETURNED BY THE BANK ON
DECEMBER 30, MARKED NSF. THE CHECK WAS RE-
DEPOSITED ON JANUARY 2, 2016 AND CLEARED ON
C. A 25,000 CHECK PAYABLE TO A SUPPLIER AND DRAWN ON
NEW YORK’S ACCOUNT, WAS DATED AND RECORDED ON
DECEMBER 31, BUT WAS NOT MAILED UNTIL JANUARY 19,
2016.
D. A 3,000 CHECK PAYABLE TO NEW YORK, DATED DECEMBER
30, 2016, WAS INCLUDED IN THE ABOVE CHECKBOOK
BALANCE.
E. A CUSTOMER CHECK OF 25,000 OUTSTANDING FOR 18
MONTHS, NOT INCLUDED IN THE ABOVE CHECKBOOK
BALANCE.
F. CASH RECEIPTS JOURNAL WAS HELD OPEN UNTIL
JANUARY 15, 2016 DURING WHICH TIME 10,000 WAS
COLLECTED AND RECORDED ON DECEMBER 31, 2015.
G. A 2,000 CHECK WRITTEN DECEMBER 26, 2015 AND DATED
JANUARY 31, 2016 DELIVERED TO PAYEE ON DECEMBER 26,
2015, WAS INCLUDED IN THE ABOVE CHECKBOOK
BALANCE.
H. ANOTHER CUSTOMER CHECK FOR 6,000 DEPOSITED ON
DECEMBER 22, 2015 WAS INCLUDED IN THE CHECKBOOK
BALANCE BUT RETURNED BY THE BANK FOR
INSUFFICIENCY OF FUND. THIS CHECK WAS RE-DEPOSITED
ON DECEMBER 26, 2015 AND CLEARED TWO DAYS LATER.
HOW MUCH SHOULD NEW YORK CORPORATION REPORT AS
CASH?