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FAR OCAMPO/OCAMPO
FAR.3115-Cash and Cash Equivalents OCTOBER 2021

DISCUSSION PROBLEMS
1. A financial instrument is 4. A financial liability is any liability that is:
I. A contractual obligation to deliver cash or another
financial asset to 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.

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
conditions that are potentially favorable to the liability
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
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

3. Using the data given below, compute for the total

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 Ð 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
Interest rate swap receivable 200,000 7. Cash comprises cash on hand and demand deposits.
Which of the following items can be considered as
Investment in debt securities Ð FVTOCI 400,000
Investment in debt securities Ð AC 300,000 ÔcashÕ?
Land 2,000,000 I. Credit card receipts representing sales
II. Bitcoins
Buildings 3,000,000
III. US dollar bills
Machinery and equipment 1,500,000
Patents 0
250,000 0 IV. Certificates of deposit
a. I, II, III and IV
c. P2,550,000
b. III and IV only d. None of these
b. P4,600,000 d. P2,600,000
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EXCEL PROFESSIONAL SERVICES, INC.

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 2021 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 December 31, 2020. The
for investment or other purposes.
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.
d. None, all the statements are correct. The total amount to be reported as ÔcashÕ as of
December 31, 2020 is
9. Which of the following may qualify as cash a. P6,300,000
equivalents? b. P5,300,000 d. P2,300,000
a. Investment in ordinary shares
b. Investment in share options 14. Compensating balance
a. Is a minimum or average balance on deposit with a
bank.
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 Lincoln Corporation on compensation for the credit extended.
December 31, 2020:
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. ÒLegally restrictedÓ 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
EmployeeÕs post dated check 4,000 not Òlegally restrictedÓ are not shown separately.
IOU from employees 10,000 However, footnote disclosure is necessary.
Credit memo from a vendor for a
purchase return 20,000 d. Neither a nor b.
TravelerÕs 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
CustomerÕs check dated 1/1/21 80,000 on deposit at National Bank which will earn interest at
Time deposit Ð 30 days 200,000 4%. The effective interest that Tinoc pays on its
Money market placement (due 6/30/21) 500,000 P2,000,000 loan is
Treasury bills, due 3/31/21 a. 10.0% c. 12.0%
(purchased 12/31/20) 200,000 b. 11.6%
Treasury bills, due 1/31/21
(purchased 2/1/20) 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 December 31, 2020 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 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
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 Òtake homeÓ amount of
c. Treasury bonds the loan.)
b. Treasury notes d. Treasury shares a. 12.8% c. 13.0%
d. 13.4%
12. In accordance with PAS 7, when can bank overdrafts
be included as a component of cash and cash
equivalents? 18. The following information pertains to an entityÕs 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
Cash receipts from dividends and interest 80,000
Cash payments for interest 250,000
0
13. Baxia Corporation had the following account balances 0
Cash payments to suppliers of goods 6,000,000
Cash payments to employees 800,000
at December 31, 2020:
Cash payments to acquire property, plant
and equipment 1,200,000