Question

In: Accounting

Li Ltd requires you to determine, for the two  scenarios below, the ‘cash and cash equivalents’ amount...

Li Ltd requires you to determine, for the two  scenarios below, the ‘cash and cash equivalents’ amount to include in its Statement of Cash Flows.

Scenario 1

Scenario 2

Cash at bank

$20 000

$33 000

Short term investment (45 day)

-

$70 000

Foreign bank account  (insignificant risk of change in value)

3 000

-

Short term investment (120 day)

10 000

-

Redeemable preference shares  (redeemable in three years)

-

3 500

Petty cash

-

50

Bank overdraft

7 680

-

Redeemable preference shares  (redeemable in 60 days)

-

15 000

Cash and cash equivalents =

$

$

Solutions

Expert Solution

Details Scenario 1 Transaction impact on cash Calculation Scenario 2 Transaction impact on cash Calculation
Cash at bank $20 000 Opening balance 20000 $33 000 Opening balance 33000
Short term investment (45 day) - No impact 0 $70 000 adding to cash and Cash eq due to
less than 90 days		 70000
Foreign bank account  (insignificant risk of change in value) 3 000 Added to cash and cash equivalents 3000 - No impact 0
Short term investment (120 day) 10 000 Not included in cash and cash Equi due to more than 90 days 0 - No impact 0
Redeemable preference shares  (redeemable in three years) - No impact 0 3 500 No impact 0
Petty cash - No impact 0 50 adding to cash and Cash eq 50
Bank overdraft 7 680 Reduced from cash and increased Current Liabilities -7680 - No impact 0
Redeemable preference shares  (redeemable in 60 days) - No impact 0 15 000 No impact 0
Cash and cash equivalents = $ 15320 $ 103050

Note: investment normally qualifies as a cash equivalent only when it has a short maturity of, say, three months or less from the date of acquisition. Equity investments are excluded from cash equivalents.

ekkarill92 answered 15 hours ago
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