CHAPTER 7 CASH & CASH EQUIVALENTS 5.

If the related bank loan is long term, the

restricted compensating balance is a
1. Under PAS 7, treasury bills, money
noncurrent asset.
market placement and time deposit
12. If the problem is silent on the term of the
normally qualify as cash equivalents only
time deposit, it is assumed that the term is
when they have a short maturity of three
three months or less, being the normal
months or less from the date of
banking practice.
acquisition.
13. The outstanding check is deducted from the
2. In the absence of a specific term, money
cash in bank because the cash in bank
market account is short-term investment of
balance is per bank statement.
three months or less.
14. The deposit in bank closed by BSP is a
3. The cash in bank set aside for payroll is
noncurrent asset.
included in cash because it is for the
15. The vouchers paid should be recorded as
payment of current liability.
expenses.
4. The cash in bank restricted for building
16. The IOUs should be shown as advances to
construction is classified as a noncurrent
employees.
investment because it is set aside for the
17. The undelivered check is restored to cash
acquisition of a noncurrent asset and not
by debiting cash and crediting accounts
for the payment of a current liability.
payable.
5. The undelivered check is restored to the
18. The check drawn payable by the entity to
cash balance by debiting cash and crediting
the order of the petty cash custodian is
accounts payable.
actually a replenishment check and
6. The cash in sinking is a noncurrent
therefore part of cash.
investment because it is set aside for the
19. The check drawn payable to the order of the
payment of noncurrent liability.
petty cash custodian representing her salary
7. The certificate of deposit is a cash
is actually an accommodation check and
equivalent.
therefore part of cash.
8. The postdated customer check is reverted
20. If the bond payable is already due within
to accounts receivable.
one year from the end of the reporting
9. The share investments cannot qualify as
period, the sinking fund is included in cash
cash equivalents because although very
and cash equivalents.
actively traded the investments do not have
21. The classification of a cash fund should
a maturity.
parallel the classification of the related
10. The commercial papers are actually
liability.
money market placements.
22. The cash in bank restricted for plant
11. 1. A compensating balance is a minimum
addition is classified as noncurrent
checking or demand deposit account
regardless of the expected year of
balance that must be maintained in
disbursement.
connection with a borrowing arrangement
23. The bank overdraft is a current liability.
with a bank.
24. The bank overdraft is netted if it is in the
2. The compensating balance is part of
same bank.
cash if it is not legally restricted as to
25. The bank overdraft is not netted against
withdrawal.
other bank accounts but should be reported
3. Otherwise, if it is legally restricted, the
as current liability.
compensating balance is excluded from the
26. The window dressing of collections should
amount shown as “cash”, and shown
be reversed by debiting account receivable
separately as current or noncurrent asset
and crediting cash in bank.
depending on the bank loan to which it is
26.1. Window dressing is actions taken to
related.
improve the appearance of a
4. If the related bank loan is short term, the
company's financial statements.
restricted compensating balance is a
27. The pension fund is a noncurrent
current asset.
investment.
4.1. In this case the compensating
28. The restricted cash in foreign bank is
balance is shown as “cash held as
classified as noncurrent.
compensating balance” as a current asset.
29. If the check is redeposited and cleared
before the end of the reporting period, then
the same is not deducted anymore from the
checkbook balance.