Module 1: Cash and cash equivalents

Case 1: Classification of cash equivalents: As of December 31, 2016, ABC Inc. has the following investments:
 Treasury bills purchased on November 1, 2016 that will mature on March 15, 2017.
 Money market instruments acquired on December 1, 2016 that will mature on March 5, 2017.
 A time deposit made on January 1, 2016 that will mature on January 1, 2017.
 Treasury bills purchased on October 15, 2016 that will mature on January 10, 2017.
 Investment in DEF Inc., classified as financial assets at fair value through profit or loss. The investment was made on
December 15, 2016.
 Commercial paper purchased on October 1, 2016 that will mature on December 30, 2016.

Required
Classify the aforementioned items either as a cash equivalent or short-term investment.

Case 2: Computation of cash balance – Specific funds: For the period ended December 31, 2016, a total of P1,000,000 cash
was set aside by ABC Inc. for certain purposes. The breakdown is as follows:
 P5,000 for petty cash fund. Attached are petty cash vouchers for certain expenses totaling P4,400. Bills and coins on hand
for the said fund totaled P575. The fund is not yet reimbursed.
 P200,000 for salaries, wages and cash advances of employees.
 P400,000 as a bond sinking fund. The related payable is currently due.
 P395,000 as a plant expansion fund, half of which is expected to be used on the first quarter of 2017.

Required
Identify the amount that will be included as part of the cash balance.

Case 3: Computation of cash balance – Checks: For the period ended December 31, 2016, ABC Inc. has a cash-in-bank
balance of P500,000 in its books. The following items were included in the computation of such balance:
 Checks totaling P30,000 drawn by ABC Inc. The checks were written on December 31, 2016 and delivered to the bank but
have not yet cleared.
 Check #101 amounting to P80,000 drawn by ABC Inc. as payment for the monthly amortization of an officer’s car loan. The
check is dated December 20, 2016 and is still in the hands of ABC Inc. as of December 31, 2016.
 One of the checks on hand received from customers is dated January 15, 2017. The amount of the check is P200,000 which
represents payment of Customer A’s account.
 A check from Customer B dated May 15, 2016 is still in the hands of ABC Inc. and not yet encashed as of year-end. The
amount of the check is P15,000.
 A check from Customer C amounting to P25,000 has not cleared the bank due to insufficient funds in Customer C’s account.

Required
Prepare any necessary correcting entries and compute for the correct cash-in-bank balance.

Case 4: Computation of cash balance – Compensating balance: The following bank accounts are held by ABC Inc. as of
December 31, 2016:
 Savings account (#130231) in X Bank with a balance of P17,000. The bank requires a minimum balance of P1,000. The
arrangement is a legal restriction.
 Checking account (#0003231) in Y Bank with a balance of P30,000. The bank requires a compensating balance of P1,500.
No legal restriction exists for such balance.
 Savings account (#34214) in Z Bank with a balance of P230,000. The bank requires a minimum balance of P2,000.

Case 5: Computation of cash balance – Bank overdrafts: ABC Inc. maintains the following bank accounts at year-end:
 Savings account (#130231) in X Bank with a balance of P17,000.
 Checking account (#0003231) in Y Bank with a balance of P30,000.
 Checking account (#148700) in X Bank with a balance of P(1,000).
 Savings account (#34214) in Z Bank with a balance of P(5,000).
All negative balances are a result of overdrawn checks against the given account.

Required
Compute for the correct cash-in-bank balance.

Case 6: Preparation of bank reconciliation: The following information pertains to ABC Inc. as of December 31, 2016:

 Cash balance per bank statement P40,000

 Deposit in transit 13,000
 Checks outstanding (including certified check of P1,000) 5,000
 Customer note collected by bank for ABC Inc. 15,000
 NSF checks of customers returned by bank 2,000
 Bank service charge shown in December bank statement 200
 Cash balance per ledger 41,600
 Error in recording a check drawn by ABC Inc. The check has an amount of P6,000 but was recorded at P600.

Required
Compute for the adjusted cash balance.