Activity 1
1. Try to check your wallets now. Do you have cash? How much?
2. Do you have deposits in a bank? How much?
Activity 2
The following information are provided by Abcde Company on December 31, 2020:
Cash in bank P3,000,000
BPI Current Account (overdraft) (150,000)
Time Deposit - 30 days 1,000,000
Treasury Bill - 120 days 3,000,000
Money Market Instrument due on July 2021 1,500,000
Currency and Coins 10,000
More information are provided below:
The cash in bank included a customer check amounting to 150,000 outstanding for 24
months.
Undelivered check amounting to 300,000
Required:
What is the total amount of cash and cash equivalents that should be reported on December 31, 2020?
A nalysis
Cash includes money or its equivalent that is available for unrestricted use. Money is the
standard medium of exchange and the basis of accounting measurements. Other negotiable instruments
or any item that is acceptable by bank or other financial institution for deposit at face value and are
readily available for unrestricted use may form part of cash.
. A bstraction
Cash is money or its equivalent that is readily available for unrestricted use. Cash includes the following:
a. Cash on hand – refers to undeposited collections awaiting deposit and other current funds held as of
the reporting date.
b. Cash in bank- refers to deposits in banks that are available for immediate withdrawal and
unrestricted use.
c. Cash Fund-
working funds segregated for current purposes such as petty cash fund, change fund, payroll fund,
dividend fund, tax fund, and interest fund.
Cash Classification
Cash Items
Unrestricted and
immediately
available for use in
current operation
Reported as "cash"
in the current asset
section
Reported as "Cash"
in the current
section
Restricted and for
use oter than for
current operatons.
Reported under
other non current
financial assets
Post-dated checks and Unreleased checks
Postdated checks received from customers are excluded from cash.
Postdated checks drawn are included in cash.
Unreleased checks drawn are included in cash.
Cash equivalents
Cash equivalents are “short-term, highly liquid investments that are readily convertible to
known amounts of cash and which are subject to an insignificant risk of changes in value.” (PAS
7 Statement of Cash Flows)
Only highly liquid investments that are acquired 3 months or less before maturity can qualify as
cash equivalents.
Financial statement presentation
Items of cash and cash equivalents are aggregated and presented in the statement of financial
position under a single line item described as “Cash and cash equivalents.”
Measurement
Cash is measured at face amount.
Cash denominated in foreign currency is translated at the current exchange rate as of reporting
date.
Cash maintained in a bank undergoing bankruptcy is excluded from cash and presented as
receivable measured at realizable value.
Compensating balance
Compensating balances that are legally restricted as to withdrawal by the borrower are
excluded from cash.
Compensating balances that are not legally restricted as to withdrawal are included in cash.
Whether restricted or not, compensating balances are disclosed in the notes.
Bank overdraft
A bank overdraft is presented as a current liability, unless it qualifies to be offset against cash.
Petty cash fund
Petty cash fund is money set aside to defray relatively small amounts of cash disbursements.
Illustration:
Problem 1
Cash
1. The records of SM Co. on December 31, 2021 the following:
Checks drawn but not yet issued to payees P120,000
Customers’ checks dated January 15, 2022 35,000
Customer’s checks dted December 31, 2021 40,000
SML’s checks dated Jan. 15, 20x2 already mailed to payee 16,000
Cash on Hand 130,000
Employees’s checks representing unclaimed salaries,
held by the treasurer 14,000
Petty cash fund (fully replesnished) 20,000
Requirement: How much is included as cash on December 31, 2021?
Solution:
Checks drawn but not yet issued to payees 120,000
Customers’ checks dated Dec. 31, 20x1 40,000
SML’s check dated Jan. 15, 20x2 already mailed to payee 16,000
Cash on hand 130,000
Employees’ checks representing unclaimed salaries,
held by the treasurer 14,000
Petty cash fund (fully replenished) 20,000
Total 340,000
Cash Equivalent
2. Brwhringer Co. holds the following securities on December 31, 2021:
Treasury bill acquired on November 1. 2021, maturing in
January 31, 2022 P300,000
Money market placements to RCBC trust, made on
December 15, 2021, maturing on August 31, 2022 800,000
Redeemable preference shares acquired on
December 31, 2021 and redeemable on Mar 31, 2022 1,600,000
Three-month time deposit with UCPB 950,000
Investment in shares of stocks acquired on Dec. 31, 2021
to be sold in January 2022 450,000
Requirement: How much is presented as cash equivalents?
Solution:
Treasury bill acquired on Nov. 1, 20x1 300,000
Investment in redeemable preference shares 1,600,000
Three-month time deposit with UCPB - unrestricted 950,000
Total 2,850,000
FS presentation, Measurement & Deposit in foreign bank
3. Smile Co. has the following items in December 31, 2021:
Cash on hand(peso) P1,800,000
Cash on hand (USD, translated ast P50:$1) 2,900,000
Revolving fund 200,000
Contingency fund 80,000
Cash in bank-BPI 6,000,000
Cash in bank- Swiss Savings Account (translated at
P51:CHFI1) 1,400,000
Treasury Bill acquired September 28, 20x1, maturing
January 28, 2022 600,000
Additional information:
The current exchange rate on December 31, 2021 are as follows:
P52:$1 and P49:CHF1
The Swiss Savings Account is restricted as to withdrawal.
Requirement: How much is presented as cash and cash equivalents in Smile Co.’s December 32, 2021
statement of financial position?
Solution:
Cash on hand (peso) 1,800,000
Cash on hand (2.9M ÷ 50) x 52 3,016,000
Revolving fund 200,000
Cash in bank – BPI 6,000,000
Cash and Cash Equivalents - Dec. 31, 20x1 11,016,000
The contingency fund is a noncurrent asset.
The restricted deposit in foreign bank (i.e., Swiss Savings Account) is excluded from cash and,
preferably presented as receivable or as “other asset,” depending on the nature of the restriction.
For example, if the restriction is imposed by the Philippine Government, such as when it results
from a pending litigation, the more appropriate classification would be “Other assets,” with
appropriate disclosure in the notes. If the restriction is bank-imposed, the more appropriate
classification would be “Receivable.” Rarely, that a savings account (foreign or local) qualifies as
an investment, unless the deposit earns interest above the normal rate for regular savings
accounts.
Compensating balance and Bank Overdraft
4. Cloudy Co.’s cash in bank consists of the following:
Piggy Bank savings account P480,000
Piggy Bank checking account (20,000)
Oink Bank checking account 360,000
Porky Bank savins account #5100342120 200,000
Porky Bank checking account (70,000)
Unused credit line-Bombay 250,000
Additional information
The Piggy Bank savings account includes P 40,000 compensating balance that is not legally
restricted .
The Oink Bank checking account includes P100,000 compensating balance that is legally
restricted.
The Porky Bank savings account #5100342120 represents a cash bond that is mandated by a law
court to be held pending the final settlement of an on-going litigation.
Requirement: What amount of cash in bank is presented in the financial statements?
1. Solution:
Piggy Bank savings account 480,000
Piggy Bank checking account (20,000)
Oink Bank checking account (360K - 100K compensating bal.) 260,000
Cash in bank 720,000
The ₱40,000 compensating balance on the Piggy Bank savings account is properly included
because it is not restricted.
The ₱40,000 overdraft on the Piggy Bank checking account can be offset from the Piggy Bank
savings account.
The ₱100,000 compensating balance on the Oink Bank checking account is excluded because it
is restricted.
Porky Bank savings account #5100342120, which is legally restricted, is excluded from cash and
presented under other line item (e.g., ‘Other assets’).
The overdraft in the Porky Bank checking account is presented as current liability.
Accounting for PCF
5. An entity established a petty cash fund (PCF) of P30,000 on October 1, 2021. During the month,
P24,260 have been disbursed from the PCF, and by the end of the month, the PCF box
containscons and currencies amounting to P5,625.
Requirement: Provide the journal entries including the replenishment of the fund at month-end . Use a
suspense account to record any discrepancy.
1. Solution:
Oct. 1, 20x1 Petty cash fund
Cash in bank
30,000
30,000
Oct. 1 to 31,
20x1 No journal entry
Oct. 31, 20x1 Various expenses
Cash shortage or overage
Cash in bank (30,000 – 5,625)
24,260
115
24,375
6. Use the information in #5 above but assume the PCF is not replenished and financial statement
are prepared at month end. Assume further that all discrepancies in the PCF are chargeable to
the petty cash custodian.
Requirement: Provide the adjusting entry and determine the amount of PCF that shall be reported in
the financial statements.
Solution:
Oct. 31, 20x1 Various expenses
Receivable from PCF custodian
Petty cash fund (30,000 – 5,625)
24,260
115
24,375
Amount reported in financial statements = 5,625 (equal to the coins and currencies contained in
the PCF box) or (30,000 imprest balance - 24,375 AJE = 5,625 adjusted balance).
