Manila * Cavite * Laguna * Cebu * Cagayan De Oro * Davao

Since 1977

FAR OCAMPO/OCAMPO
FAR.3515-Cash and Cash Equivalents OCTOBER 2023

DISCUSSION PROBLEMS
1. A financial instrument is 4. A financial liability is any liability that is:
a. A contract that gives rise to a financial asset of one I. A contractual obligation to deliver cash or another
entity and a financial liability or equity instrument financial asset to another entity
of another entity. II. A contractual obligation to exchange financial
b. A contract under which neither party has assets or financial liabilities with another entity
performed any of its obligations or both parties under conditions that are potentially unfavorable
have partially performed their obligations to an to the entity
equal extent. III. A contract that will or may be settled in the
c. A contract under which one party accepts entity's own equity instruments and is a non-
significant insurance risk from another party by derivative for which the entity is or may be
agreeing to compensate the policyholder if a obliged to deliver a variable number of the
specified uncertain future event adversely affects entity's own equity instruments
the policyholder. IV. A contract that will or may be settled in the
d. A contract that requires the issuer to make entity's own equity instruments and is a
specified payments to reimburse the holder for a derivative that will or may be settled other than
loss it incurs because a specified debtor fails to by the exchange of a fixed amount of cash or
make payment when due in accordance with the another financial asset for a fixed number of the
original or modified terms of a debt instrument. entity's own equity instruments.
a. I, II, III and IV
2. A financial asset is any asset that is:
b. I, II and III only
I. Cash
c. I and II only
II. An equity instrument of another entity
d. III and IV only
III. A contractual right to receive cash or another
financial asset from another entity
5. Using the data given below, compute for the total
IV. A contractual right to exchange financial assets or
amount of items that meet the definition of financial
financial liabilities with another entity under
liability
conditions that are potentially favorable to the
entity Bank overdraft P 100,000
V. A contract that will or may be settled in the Accounts payable 1,200,000
entity's own equity instruments and is a non- Notes payable 500,000
derivative for which the entity is or may be Loans payable 1,800,000
obliged to receive a variable number of the Income tax payable 120,000
entity's own equity instruments Warranty obligations 180,000
VI. A contract that will or may be settled in the Deferred revenue 240,000
entity's own equity instruments and is a Cumulative, redeemable preference
derivative that will or may be settled other than shares at the option of the holder 1,000,000
by the exchange of a fixed amount of cash or Non-cumulative, non-redeemable
another financial asset for a fixed number of the preference shares 2,000,000
entity's own equity instruments.
a. P4,900,000 c. P4,600,000
a. I, II, III, IV, V and VI b. P3,620,000 d. P4,500,000
b. I, II, III, IV and V only
c. I, II, III and IV only 6. Currency (cash) is a financial asset. Why?
d. I, II and III only a. Because it represents the medium of exchange and
is therefore the basis on which all transactions are
3. Using the data given below, compute for the total measured and recognized in financial statements.
amount of items that meet the definition of financial b. Because it represents the contractual right of the
asset depositor to obtain cash from the institution or to
draw a check or similar instrument against the
Cash P 150,000
balance in favor of a creditor in payment of a
Investment in shares – FVTPL 500,000
financial liability.
Investment in associate 2,000,000
c. Both a and b.
Accounts receivable 1,000,000
d. Neither a nor b.
Inventories 800,000
Prepaid rent 50,000
7. Cash comprises cash on hand and demand deposits.
Interest rate swap receivable 200,000
Which of the following items can be considered as
Investment in debt securities – FVTOCI 400,000
‘cash’?
Investment in debt securities – AC 300,000
I. Credit card receipts representing sales
Land 2,000,000
II. Cryptocurrencies
Buildings 3,000,000
III. US dollar bills
Machinery and equipment 1,500,000
IV. Certificates of deposit
Patents 250,000
a. I, II, III and IV c. III only
a. P4,550,000 c. P2,550,000
b. III and IV only d. None of these
b. P4,600,000 d. P2,600,000

Page 1 of 4 www.teamprtc.com.ph FAR.3515

TEAM PRTC

8. Which statement is incorrect regarding cash Current account at Bank A P2,500,000

equivalents? Savings account at Bank B restricted
a. Cash equivalents are short-term, highly liquid for bonds payable due on June 30,
investments that are readily convertible to known 2024 1,000,000
amounts of cash and which are subject to an Time deposit at Bank C 3,000,000
insignificant risk of changes in value.
Current account at Bank A includes P500,000 of
b. Cash equivalents are held for the purpose of
compensating balance against short-term borrowing
meeting short-term cash commitments rather than
arrangement at Dec. 31, 2023. The compensating
for investment or other purposes.
balance is legally restricted as to withdrawal by Baxia.
c. An investment normally qualifies as a cash
A check of P300,000 dated Jan. 15, 2024 in payment
equivalent only when it has a short maturity of,
of accounts payable was recorded and mailed on Dec.
say, three months or less from the end of the
31, 2023.
reporting period.
d. None, all the statements are correct. The total amount to be reported as ‘cash’ as of Dec.
31, 2023 is
9. Which of the following may qualify as cash a. P6,300,000 c. P3,300,000
equivalents? b. P5,300,000 d. P2,300,000
a. Investment in ordinary shares
b. Investment in share options 14. Compensating balance
c. Investment in preference shares acquired within a a. Is a minimum or average balance on deposit with a
short period of their maturity and with a specified bank.
redemption date b. Constitutes support for existing borrowing
d. None of these arrangements.
c. Provides a source of funds to the lender as partial
10. The following data pertain to an entity on Dec. 31, compensation for the credit extended.
2023: d. All of these.
Current account at Bangko Dito P1,800,000
Current account at Bangko Doon (100,000) 15. Which statement is correct regarding presentation of
Payroll account at Bangko Dyan 500,000 compensating balances?
Foreign bank account a. “Legally restricted” deposits held as compensating
(in equivalent pesos) 800,000 balances should be segregated and reported
Savings account in a closed bank 150,000 separately.
Postage stamps 1,000 b. Deposits held as compensating balances that are
Employee’s post dated check 4,000 not “legally restricted” are not shown separately.
IOU from employees 10,000 However, footnote disclosure is necessary.
Credit memo from a vendor for a c. Both a and b.
purchase return 20,000 d. Neither a nor b.
Traveler’s check 50,000
Money order 30,000 16. Tinoc Company borrows P2,000,000 from National
Sinking fund 2,000,000 Bank at 12% annual interest. In addition, Tinoc is
DAIF check of customer 15,000 required to keep a compensatory balance of P200,000
Customer’s check dated 1/1/24 80,000 on deposit at National Bank which will earn interest at
Time deposit – 30 days 200,000 4%. The effective interest that Tinoc pays on its
Money market placement (due 6/30/24) 500,000 P2,000,000 loan is
Treasury bills, due 3/31/24 a. 10.0% c. 12.0%
(purchased 12/31/23) 200,000 b. 11.6% d. 12.9%
Treasury bills, due 1/31/24
(purchased 2/1/23) 300,000 17. Ray Company is negotiating a loan with Excel Bank.
Ray needs P900,000. As part of the loan agreement,
The total amount to be reported as cash and cash Excel Bank will require Ray to maintain a
equivalents as of Dec. 31, 2023 is compensating balance of 15% of the loan amount on
a. P2,780,000 c. P3,780,000 deposit in a checking account at the bank. Ray
b. P3,080,000 d. P3,580,000 currently maintains a balance of P50,000 in the
rro checking account. The interest rate Ray is required to
pay on the loan is 12%. Excel Bank pays 4% interest
11. These are peso-denominated short-term fixed income on checking accounts. Determine the effective interest
securities issued by the Republic of the Philippines rate on the loan. (Hint: Compute the net interest paid
through its Bureau of Treasury on the loan per year and the “take home” amount of
a. Treasury bills c. Treasury bonds the loan.)
b. Treasury notes d. Treasury shares a. 12.8% c. 13.0%
b. 12.9% d. 13.4%
12. In accordance with PAS 7, when can bank overdrafts P7-53 Skousen/Cabrera /rpcpa 5.08
be included as a component of cash and cash
equivalents? 18. The following information pertains to an entity’s cash
a. Under no circumstances. account:
b. In all circumstances.
Cash balance, beginning P 880,000
c. When they are considered as bank borrowings.
Cash receipts from the sale of goods 8,000,000
d. When they are repayable on demand and form an
Cash receipts from dividends and interest 80,000
integral part of an entity's cash management.
Cash payments for interest 250,000
Cash payments to suppliers of goods 6,000,000
13. Baxia Corporation had the following account balances
Cash payments to employees 800,000
at Dec. 31, 2023:
Cash payments to acquire property, plant
and equipment 1,200,000

Page 2 of 4 www.teamprtc.com.ph FAR.3515

TEAM PRTC

Cash receipts from sales of property, 25. A petty cash system is designed to
plant and equipment 280,000 a. Cash checks for employees
Cash payments to acquire equity or debt b. Handle cash sales
instruments of other entities 520,000 c. Account for all cash receipts and disbursements
Cash receipts from sales equity or debt d. Pay small miscellaneous expenses
instruments of other entities 430,000
Cash proceeds from issuing shares 1,600,000 26. Which of the following is true regarding the imprest
Cash payments to owners to redeem the petty cash system?
entity’s shares 340,000 a. Entries are made to the Petty Cash account only to
Cash proceeds from borrowings 2,100,000 increase or decrease the size of the fund.
Cash repayments of amounts borrowed 1,700,000 b. The Petty Cash account is debited when the fund is
replenished.
The entity’s cash balance at the end of the period is
c. The imprest petty cash system in effect adheres to
a. P2,480,000 c. P2,650,000
the rule of disbursement by check.
b. P2,560,000 d. P2,840,000
d. All of these are not true.
19. An office supplies enterprise, operating on a calendar-
year basis, has the following data in its accounting
Use the following information for the next three questions.
records:
01/01 12/31 The petty cash fund of Guiguinto Company on December
Cash P 47,000 31 is composed of the following:
Inventory 101,000 P 93,000 Coins and currencies P14,000
Accounts receivable 82,000 116,000 Petty cash vouchers:
Accounts payable 68,000 63,000 Gasoline payments 3,000
Sales 1,150,000 Supplies 1,000
Cost of goods sold 900,000 Cash advances to employees 2,000
Operating expenses 200,000 Employee’s check returned by bank
marked NSF 5,000
What is the cash balance at December 31?
Check drawn by the company payable to
a. P50,000 c. P 76,000
the order of the petty cash custodian,
b. P66,000 d. P134,000
representing her salary 20,000
CIA 1189 IV-14
A sheet of paper with names of
employees together with contribution
20. Which of the following is not a basic characteristic of a
for a birthday gift of a co-employee in
system of cash control?
the amount of 8,000
a. Use of a voucher system
P53,000
b. Segregated responsibility for handling and
recording cash The petty cash ledger account has an imprest balance
c. Internal audits at irregular intervals of P50,000.
d. Weekly deposit of all cash received
27. What is the correct amount of petty cash on December
21. Important elements of an internal control system for 31?
cash disbursements include each of the following a. P34,000 c. P39,000
except: b. P14,000 d. P42,000
a. Only authorized personnel should sign checks.
b. All expenditures should be authorized before a 28. The adjusting entry at December 31 would include a
check is prepared. a. Debit to Cash of P16,000
c. All disbursements, other than very small b. Debit to Expenses of P11,000
disbursements, should be made by check. c. Credit to Cash Short or Over of P5,000
d. The same person that prepares the check should d. Credit to Petty Cash Fund of P16,000
also record it to the proper journal.
29. A cash over or short account
22. The cash receipts function should be separated from a. Is not generally accepted
the related record keeping in an organization to b. Is debited when the petty cash fund proves out
a. Physically safeguard the cash receipts. over
b. Establish accountability when the cash is first c. Is debited when the petty cash fund proves out
received. short
c. Prevent paying cash disbursements from cash d. Is a contra account to cash
receipts.
d. Minimize undetected misappropriations of cash 30. Which statement is incorrect regarding presentation
receipts. and disclosure of cash and cash equivalents?
a. Cash and cash equivalents are normally presented
23. It consists of misappropriating a collection from one as the first line item under current assets.
customer and concealing this defalcation by applying a b. The entity should disclose the components of
subsequent collection made from another customer. cash and cash equivalents.
a. Window dressing c. Kiting c. The entity should disclose the amount of
b. Lapping d. Imprest system significant cash and cash equivalent balances
held by the entity that are not available for use
24. The payments of accounts payable made subsequent
by the group.
to the close of the accounting period are recorded as if
d. Cash on hand should be included under the
they were made at the end of the current period.
disclosures on credit risk.
a. Window dressing c. Kiting
b. Lapping d. Imprest system
- done -

Page 3 of 4 www.teamprtc.com.ph FAR.3515

TEAM PRTC

ILLUSTRATIVE PROBLEM
PROBLEM NO. 1 – Items reported as cash and cash equivalents

_____ 1. Post-dated check received

_____ 2. Short-term government bonds
_____ 3. Cash in checking account
_____ 4. Cryptocurrencies
_____ 5. Cash in savings account
_____ 6. Postage stamps
_____ 7. Bank drafts
_____ 8. Treasury bills
_____ 9. Cashier’s check
_____ 10. Manager’s check
_____ 11. Treasury bonds, acquired 3 months before due date
_____ 12. Treasury bonds, acquired 1 year before due date, due in 3 months
_____ 13. Certified check
_____ 14. Time deposit
_____ 15. Money orders
_____ 16. IOU from officers
_____ 17. Traveler’s check
_____ 18. Petty cash
_____ 19. Sinking fund
_____ 20. Money market funds

REQUIRED:

YES OR NO. Write YES if the item is cash or cash equivalent. If not, write NO. If cash or cash equivalent, specify whether
cash or cash equivalent. If not cash or cash equivalent, specify the presentation.

ANSWERS:

1. NO (Trade and other receivables)

2. YES (Cash equivalents)
3. YES (Cash)
4. NO (Inventories or Intangible assets)
5. YES (Cash)
6. NO (Supplies or Other current assets)
7. YES (Cash)
8. YES (Cash equivalents)
9. YES (Cash)
10. YES (Cash)
11. YES (Cash equivalents)
12. NO (Short-term investments)
13. YES (Cash)
14. YES (Cash equivalents)
15. YES (Cash)
16. NO (Trade and other receivables)
17. YES (Cash)
18. YES (Cash)
19. NO (Non-current investments)
20. YES (Cash equivalents)

J - end of FAR.3515 - J

Page 4 of 4 www.teamprtc.com.ph FAR.3515