Manila *

Cavite * Laguna * Cebu * Cagayan De Oro * Davao Since 1977

FAR OCAMPO/OCAMPO FAR.3015-Cash and Cash Equivalents MAY 2021

DISCUSSION PROBLEMS
1. A financial instrument is
a. A contract that gives rise to a financial asset of one
entity and a financial liability or equity instrument of
another entity.
b. A contract under which neither party has performed
any of its obligations or both parties have partially
performed their obligations to an equal extent.
c. A contract under which one party accepts significant
insurance risk from another party by agreeing to
compensate the policyholder if a specified uncertain
future event adversely affects the policyholder.
d. A contract that requires the issuer to make specified
payments to reimburse the holder for a loss it incurs
because a specified debtor fails to make payment
when due in accordance with the original or modified
terms of a debt instrument.
I. A contractual obligation to deliver cash or another
financial asset to another entity
II. A contractual obligation to exchange financial assets or
financial liabilities with another entity under
conditions that are potentially unfavorable to the
entity
III. A contract that will or may be settled in the entity's
own equity instruments and is a non derivative for
which the entity is or may be obliged to deliver a
variable number of the entity's own equity
instruments
IV. A contract that will or may be settled in the entity's
own equity instruments and is a derivative that will
or may be settled other than by the exchange of a
fixed amount of cash or another financial asset for a
fixed number of the entity's own equity instruments.

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a. I, II, III and IV
2. A financial asset is any asset that is:
b. I, II and III only

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I. Cash eH w 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

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asset from another entity
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IV. A contractual right to exchange financial assets or 5. Using the data given below, compute for the total amount
of items that meet the definition of financial liability
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financial liabilities with another entity under

conditions that are potentially favorable to the entity Bank overdraft P 100,000
V. A contract that will or may be settled in the entity's Accounts payable 1,200,000
own equity instruments and is a non derivative for
which the entity is or may be obliged to receive a Notes payable 500,000
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variable number of the entity's own equity Loans payable 1,800,000

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instruments Income tax payable 120,000

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VI. A contract that will or may be settled in the entity's

own equity instruments and is a derivative that will Warranty obligations 180,000
or may be settled other than by the exchange of a Deferred revenue 240,000
fixed amount of cash or another financial asset for a
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fixed number of the entity's own equity instruments. Cumulative, redeemable preference
shares at the option of the holder 1,000,000
ed d

a. I, II, III, IV, V and VI Non-cumulative, non-redeemable

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b. I, II, III, IV and V only preference shares 2,000,000

c. I, II, III and IV only
a. P4,900,000 c. P4,600,000 b. P3,620,000 d.
d. I, II and III only
P4,500,000
3. Using the data given below, compute for the total amount
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6. Currency (cash) is a financial asset. Why?

of items that meet the definition of financial asset
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Cash P 150,000 a. Because it represents the medium of exchange and is

Investment in shares – FVTPL 500,000 therefore the basis on which all transactions are
measured and recognized in financial statements.
Investment in associate 2,000,000
Accounts receivable 1,000,000 b. Because it represents the contractual right of the
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Inventories 800,000 depositor to obtain cash from the institution or to

draw a check or similar instrument against the
Prepaid rent 50,000
balance in favor of a creditor in payment of a financial
Interest rate swap receivable 200,000 liability.
Investment in debt securities – FVTOCI 400,000 c. Both a and b.
Investment in debt securities – AC 300,000 d. Neither a nor b.
Land 2,000,000
7. Cash comprises cash on hand and demand deposits. Which
Buildings 3,000,000 of the following items can be considered as ‘cash’?
Machinery and equipment 1,500,000 I. Credit card receipts representing sales
II. Bitcoins
Patents 250,000
III. US dollar bills
a. P4,550,000 c. P2,550,000 b. P4,600,000 d. IV. Certificates of deposit
P2,600,000
a. I, II, III and IV c. III only b. III and IV only d. None of
4. A financial liability is any liability that is:
these

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 Page 1 of 3 www.teamprtc.com.ph FAR.3015
EXCEL PROFESSIONAL SERVICES, INC.
8. Which statement is incorrect regarding cash equivalents?
a. 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.
b. Cash equivalents are held for the purpose of meeting
short-term cash commitments rather than
investment or other purposes.
c. An investment normally qualifies as a cash equivalent
only when it has a short maturity of, say, three
months or less from the end of the reporting period.
d. None, all the statements are correct.
9. Which of the following may qualify as cash equivalents?
a. Investment in ordinary shares
b. Investment in share options
c. Investment in preference shares acquired within a short
period of their maturity and with a specified
redemption date
d. None of these
10. The following data pertain to Lincoln Corporation on
December 31, 2020:
Current account at Bangko Dito P1,800,000
Current account at Bangko Doon (100,000)
Payroll account at Bangko Dyan 500,000
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Foreign bank account
(in equivalent pesos) 800,000
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Savings account in a closed bank 150,000
Postage stamps 1,000
Employee’s post dated check 4,000
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IOU from employees 10,000
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Credit memo from a vendor for a
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purchase return 20,000
Traveler’s check 50,000
Money order 30,000
Sinking fund 2,000,000
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DAIF check of customer 15,000
Customer’s check dated 1/1/21 80,000
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Time deposit – 30 days 200,000
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Money market placement (due 6/30/21) 500,000 Treasury
bills, due 3/31/21
(purchased 12/31/20) 200,000
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Treasury bills, due 1/31/21
(purchased 2/1/20) 300,000
ed d
The total amount to be reported as cash and cash
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equivalents as of December 31, 2020 is
a. P2,780,000 c. P3,780,000 b. P3,080,000 d.
P3,580,000
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11. These are peso-denominated short-term fixed income
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securities issued by the Republic of the Philippines
through its Bureau of Treasury
a. Treasury bills c. Treasury bonds b. Treasury notes d.
Treasury shares
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12. In accordance with PAS 7, when can bank overdrafts be
included as a component of cash and cash equivalents?
a. Under no circumstances.
b. In all circumstances.
c. When they are considered as bank borrowings.
d. When they are repayable on demand and form an
integral part of an entity's cash management.
13. Baxia Corporation had the following account balances at
December 31, 2020:
Current account at Bank A P2,500,000
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EXCEL PROFESSIONAL SERVICES, INC.
Cash receipts
This from
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plant and equipment 280,000
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Savings account at Bank B restricted
for bonds payable due on June 30,
2021 1,000,000
Time deposit at Bank C 3,000,000
Current account at Bank A includes P500,000 of
for compensating balance against short term borrowing
arrangement at December 31, 2020. The compensating
balance is legally restricted as to withdrawal by Baxia. A
check of P300,000 dated January 15, 2021 in payment of
accounts payable was recorded and mailed on December
31, 2020.
The total amount to be reported as ‘cash’ as of December
31, 2020 is
a. P6,300,000 c. P3,300,000 b. P5,300,000 d.
P2,300,000
14. Compensating balance
a. Is a minimum or average balance on deposit with a
bank.
b. Constitutes support for existing borrowing
arrangements.
c. Provides a source of funds to the lender as partial
compensation for the credit extended.
d. All of these.
15. Which statement is correct regarding presentation of
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compensating balances?
a. “Legally restricted” deposits held as compensating
balances should be segregated and reported
separately.
b. Deposits held as-- compensating balances that are not
“legally restricted” are not shown separately.
However, footnote disclosure is necessary.
c. Both a and b.
d. Neither a nor b.
16. Tinoc Company borrows P2,000,000 from National Bank at
12% annual interest. In addition, Tinoc is required to keep
a compensatory balance of P200,000 on deposit at
National Bank which will earn interest at 4%. The effective
interest that Tinoc pays on its P2,000,000 loan is
a. 10.0% c. 12.0% b. 11.6% d. 12.9%
17. Ray Company is negotiating a loan with Excel Bank. Ray
needs P900,000. As part of the loan agreement, Excel
Bank will require Ray to maintain a compensating balance
of 15% of the loan amount on deposit in a checking
account at the bank. Ray currently maintains a balance of
P50,000 in the checking account. The interest rate Ray is
required to pay on the loan is 12%. Excel Bank pays 4%
interest on checking accounts. Determine the effective
interest rate on the loan. (Hint: Compute the net interest
paid on the loan per year and the “take home” amount of
the loan.)
a. 12.8% c. 13.0% b. 12.9% d. 13.4%
18. The following information pertains to an entity’s cash
account:
Cash balance, beginning P 880,000
Cash receipts from the sale of goods 8,000,000
Cash receipts from dividends and interest 80,000
Cash payments for interest 250,000
Cash payments to suppliers of goods 6,000,000
Cash payments to employees 800,000
Cash payments to acquire property, plant
And equipment 1,200,000
Cash payments
to acquire
19:43:41 GMT -05:00 equity or debt
 instruments of other entities 520,000 a. Cash checks for employees
Cash receipts from sales equity or debt b. Handle cash sales
instruments of other entities 430,000 c. Account for all cash receipts and disbursements d.
Cash proceeds from issuing shares 1,600,000 Pay small miscellaneous expenses
Cash payments to owners to redeem the
entity’s shares 340,000 26. Which of the following is true regarding the imprest petty
Cash proceeds from borrowings 2,100,000 cash system?
Cash repayments of amounts borrowed 1,700,000 a. Entries are made to the Petty Cash account only to
increase or decrease the size of the fund.
The entity’s cash balance at the end of the period is b. The Petty Cash account is debited when the fund is
a. P2,480,000 c. P2,650,000 b. P2,560,000 d. replenished.
P2,840,000 c. The imprest petty cash system in effect adheres to the
rule of disbursement by check.
19. An office supplies enterprise, operating on a calendar year d. All of these are not true.
basis, has the following data in its accounting records:
01/01 12/31
Use the following information for the next three questions.
Cash P 47,000
Inventory 101,000 P 93,000 The petty cash fund of Guiguinto Company on December 31 is
Accounts receivable 82,000 116,000 composed of the following:
Accounts payable 68,000 63,000
Coins and currencies P14,000
Sales 1,150,000
Cost of goods sold 900,000 Petty cash vouchers:
Operating expenses 200,000 Gasoline payments 3,000
Supplies 1,000
What is the cash balance at December 31? Cash advances to employees 2,000
a. P50,000 c. P 76,000 b. P66,000 d. P134,000 Employee’s check returned by bank
marked NSF 5,000
20. Which of the following is not a basic characteristic of a Check drawn by the company payable to
system of cash control? the order of the petty cash custodian,
a. Use of a voucher system representing her salary 20,000 A sheet of paper with
b. Segregated responsibility for handling and recording names of

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cash employees together with contribution

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c. Internal audits at irregular intervals for a birthday gift of a co-employee in
d. Weekly deposit of all cash received

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the amount of 8,000 P53,000

21. Important elements of an internal control system for cash

disbursements include each of the following except:
eH w The petty cash ledger account has an imprest balance of
P50,000.

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a. Only authorized personnel should sign checks.
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b. All expenditures should be authorized before a check is 27. What is the correct amount of petty cash on December
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prepared. 31?
c. All disbursements, other than very small a. P34,000 c. P39,000 b. P14,000 d. P42,000
disbursements, should be made by check.
d. The same person that prepares the check should also 28. The adjusting entry at December 31 would include a a.
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record it to the proper journal. Debit to Cash of P16,000

b. Debit to Expenses of P11,000
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22. The cash receipts function should be separated from the c. Credit to Cash Short or Over of P5,000
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related record keeping in an organization to d. Credit to Petty Cash Fund of P16,000

a. Physically safeguard the cash receipts. 29. A cash over or short account
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b. Establish accountability when the cash is first received. a. Is not generally accepted
c. Prevent paying cash disbursements from cash receipts. b. Is debited when the petty cash fund proves out over
ed d

d. Minimize undetected misappropriations of cash c. Is debited when the petty cash fund proves out short
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receipts. d. Is a contra account to cash

23. It consists of misappropriating a collection from one 30. Which statement is incorrect regarding presentation
customer and concealing this defalcation by applying a and disclosure of cash and cash equivalents?
subsequent collection made from another customer.
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a. Cash and cash equivalents are normally presented as the

a. Window dressing c. Kiting first line item under current assets.
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b. Lapping d. Imprest system b. The entity should disclose the components of cash
and cash equivalents.
24. The payments of accounts payable made subsequent to c. The entity should disclose the amount of significant
the close of the accounting period are recorded as if they cash and cash equivalent balances held by the
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were made at the end of the current period. entity that are not available for use by the group.
d. Cash on hand should be included under the disclosures
a. Window dressing c. Kiting on credit risk.
b. Lapping d. Imprest system
☺ - end of FAR.3015 - ☺
25. A petty cash system is designed to

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