CASH & CASH EQUIVALENTS

Related Standards:
Cash and cash equivalents are financial assets. Therefore, the following PFRSs on financial
instruments are relevant:
PFRS 9 - Financial Instruments: Recognition and Measurement;
PAS 32 - Financial Instruments: Presentation; and
PFRS 7 – Financial Instruments: Disclosure
 
There is no specific guidance and provisions on cash and cash equivalents on a particular PFRS
but the following standards were considered:
PAS 7 – Statement of Cash Flows                 (Definition)
PAS 1- Presentation of Financial Statements         (Guidance on Presentation)
 
Accordingly, PAS 7 defines cash and cash equivalents as:
Cash and cash equivalents comprise cash on hand and demand deposits, together with short-
term, highly liquid investments that are readily convertible to a known amount of cash, and that
are subject to an insignificant risk of changes in value.
 
Accounting Concerns:
ü  Nature
ü  Recognition
ü  Measurement
ü  Presentation and Disclosures
 
Nature of Cash and Cash Equivalents
Cash comprises cash on hand and demand deposits (PAS 7)
1.  Undeposited currencies – (bills and coins)
2.  Checks
3.  Working funds – (petty cash, change, payroll etc.)
Demand deposits are unrestricted funds that can be withdrawn upon demand (checking and
saving accounts)
 
To be reported as cash, an item must be readily available and not restricted for use.
 
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.
Examples of investments that may be considered as cash equivalents:
·         Commercial papers
·         Certificate of deposits (Time Deposit)
·         Treasury Bills
·         Treasury Bonds
Common Cash Related Items and their classification:
·         Post-dated check
 
 
 
·         Non-sufficient fund (NSF) check
 
 
 
·         Bank draft
 
 
 
·         Money order
 
 
 
·         Traveler’s check
 
 
 
·         Foreign currency bank deposits
 
 
 
·         Compensating balance
 
 
 
·         Bank overdraft
 
 
 
·         IOU from employees
 
 
 
·         Cryptocurrencies
 
 
 
 
 
Recognition
In accordance with PFRS 9, an entity shall recognize a financial assets in its statement of
financial position, when and only when, the entity becomes party to the contractual provisions of
the instruments
 
 
Measurement
Traditionally, cash is measured at face value. Cash in foreign currency is valued at the current
exchange rate as of reporting date. Cash held by a financial institution in bankruptcy or other
financial difficulty is excluded from cash and written down to estimated realizable value if the
amount is recoverable is estimated to be lower than the face amount.
 
 
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.” (PAS 1)
 
 
Petty Cash Fund
A Petty cash fund is established to pay small cash disbursements which would not be practical to
pay by check.