fa c10-11 cash, current investments

8/12/2019 FA C10-11 Cash, Current Investments

1/7

1

Financial Accounting

prof. Adriana Tiron Tudor- course

assist. Szilveszter Fekete- practice

att

Agenda course

1. Objectives

1. Objectives

3. Treasury instruments


2. Short term financial investments


4. Cash

4. Cash

What

Short term financial investments represent

Cash and cash equivalents represent

1. Objectives

1. Objectives

After studying this chapter, you will understand:

How to

Report short term financial investments, cashand cash equivalents,

Place in the Balance sheet

Non-current assets intangible assets

tangible assets

financial assets

Current assets inventory

receivable

short term investments

cash

Regulation assets pre-payments

short term investments

cash and cash equivalents


2/7

2


Contain

the purchased securities with the purpose of ashort term earning.

the shares and debentures held on short termwith the purpose of gaining an earning or a plusvalue at the time of their sale.

Them valuation is critical as their value and constantlychanging, thus creating potential ( unrealized) gains orlosses.

The earning or plus value is realized through thedifference between the bigger sell price and thesmaller buy price of these papers.

The difference from the non current financialinvestments whichs possession is for a period larger

than a year, consists in the fact that the liquidationperiod of the placement securities doesnt exceed oneyear.

2. Short term investments

In the category of the short term investments areincluded:

Other companys shares purchased with thepurpose of speculative operations throughoutresale;

Debentures issued and repurchased later, in orderto be amortized;

Debentures of the third parties purchased forobtaining interests or for resale.

2. Short term investments

Represent the acquisitioned securities for protecting the

cash or for realizing speculative operations.

The protection or coverage of the cash against theinflationist phenomena is realized taking intoaccount the variation of the purchase power of the

national currency (the exchange risk) and the interestrate (the interest risk).

In the category of the treasury instruments arecontained:

The treasury bills (T/B)/government bills

The substitutive certificates of the foreignexchange (f.ex./forex)




3/7

3

The treasury bills are used in the framework of thecredit relations between the state and the population,banks, economic agents.

The state issues these papers based on which itborrows money on short term.

The obtained treasury bills are interest carriers.

The substitutive certificates of foreign exchange are

used for the official trips outside the country (treasury ortravel bill).

Their holders benefit of foreign exchange whenthey are in another country.


3. Treasury instruments Short term investment accounting

Group 50 501 Shares in related parties

505 Redeemed debentures

506 Debentures

508 Other short term investments and related

receivables

509 Amounts payable for short term investments ( debts)

7642 Gains on disposal of short term investments

6642 Losses on disposal of short term investments

Example:

An entity purchases for speculative purposes a set of 1.000 sharesissued by a subsidiary at a cost of 4,3 lei/share. Later 400 shares aresold for the price of 5 lei/share and 300 shares for 4 lei/share. Allpayments are carried out by bank transfer

Purchase of shares of affil iated entities 501= 5091 4.300

Payment o f the equivalent of shares 5091=5121 4.300

Sales of shares for 5 lei/share 5121= % 2.000

501 1.720

7642 280

Sales of shares for 4 lei/share % = 501 1.290

5121 1.200

6642 90

Question:

How we record the transaction if thecompany intentions is to keep the sharesfor long time (over 1 year)

An entity purchases for speculative purposes a set of1.000 shares issued by a subsidiary at a cost of 4,3lei/share. Later 400 shares are sold for the price of 5lei/share and 300 shares for 4 lei/share after two years.

All payments are carried out by bank transfer.


4/7

4

Example:

800 bonds are purchased for 10 lei/bond, out of which 300 are paid incash, the rest later by bank transfer. The entity receives 200 lei interestin its bank account for the bonds held. Later the entity sells in cash 400bonds for the price of 12 and 200 for 9 lei/bond.

Purchase of 800 bonds 506 = % 8.000

5311 3.000

5092 5.000

Payment of the rest of 400 bonds 5092 = 5121 5.000

Recording interest 5088 = 766 200

Receiving interest in bank account 5121 = 5088 200Sales with gain of bonds 5311 = % 4.800

506 4.000

7642 800

Sales with loss of bonds % = 506 2.000

5311 1.800

6642 200

Contain the economic values which are in the form or fulfill thefunction of money.

IAS 7 states that cash comprise cash in hand ( coins, banknotes andcurrency available) and demand deposits (deposits in bankaccounts that are available on demand.

In this category are contained:

Petty cash (in RON and foreign exchange);

Cash at bank from the current accounts and deposits (inRON and FOREX);

Letters of credit;

Other treasury values etc.

4. Cash4. Cash

a. Petty cash represents the money found in the own cash deskand destined for small payments and emergencies.

b. Other treasury values

The postal and fiscal stamps;

The treatment and rest notes;

The travel tickets and vouchers;

The papers of value and lunch tickets;

Other values.

c. Cash at bank represent the money held at the bank in currentaccounts or short term deposits (under one year).

4. Cash4. Cash accounting

Group 51 Bank accounts

511 Outstanding values

512 Cash at bank

518 Interest

519 Short term bank loansGroup 53 Petty cash

531 Petty cash

532 Cash equivalents ( other values)


5/7

5

Example:

An entity transfers 34.000 lei in a separate account in order to purchaseeuro. 10.000 euro is purchased at the auction for 3,35 lei/euro, the chargeof operation being 40 lei. The rest of the amount is transferred back to thecurrent account in lei. At the end of the year the exchange ratedifferences are recorded, when the rate is 3,30 lei/euro.

Transferring the amount in a separate account 5125 = 5121 34.000

Purchase of euro (foreign currency) 5124 = 5125 33.500

Payment of charge 627 = 5125 40

Transferring the rest back to current account in lei 5121= 5125 460

Recording exchange rate differences at the end of the year (for theclosing balance of the account in foreign currency) 665 = 5124 500

Example:

An entity purchases fuel coupons for 100 lei, plus VAT 19%, paid incash. The coupons are used to purchase fuel (diesel oil), which isconsumed later.

Purchase of fuel coupons % = 5311 119

5328 100

4426 19

Use of coupons to buy diesel oil 3022 = 5328 100

Consumption of fuel 6022 = 3022 100

4. Cash

d. Letters of credit

represent money reserved at the bank in a differentaccount, opened at the disposal of a certain supplier.

These sums are reserved for that certain supplier fordeliveries of goods, work executions or serviceproviding.

The letters of credit guarantee their payments to thesupplier.

The letters of credit can be opened in RON or foreignexchange (FOREX).

accounting

group 54 Letters of credit

541 Letters of credit

542 Cash advances


6/7

6

Example:

An entity (VAT payer) concludes an agreement (contract) for import ofcommodities for 10.000 euro. A 10.000 euro letter of credit ispreviously opened for international payment on 3,5 lei/euro.Commodities are imported for 3,4 lei/euro. VAT in customs is paid bybank transfer. Payment to the foreign partner is made on 3,6 lei/euro.

Opening the letter of credit in euro on 3,5 lei/euro 581 = 5412 35.000

5124 = 581 35.000

Import of commodities (10.000 x 3,4) 371 = 401 34.000

Payment of VAT in customs (10.000 x 3,4 x 19%) 4426 = 5121 6.460Payment of foreign supplier on 3,6 lei/euro % = 401 36.000

665 34.000

5412 2.000

Recording exchange rate differences for the letter of credit in euro

5412 = 765 1.000

e. The cash advances

In the category of cash are also included the cashadvances.

These represent the money distributed and used inorder to be endorsed by the subordinated administrators

or employees of the subunits of the territorially dispersedcompany.

4. Cash4. Cash

Example:

A treasury advance is granted to an employee for the amount of lei,from which the following is paid: consumables, 100 lei ,accomodationexpenses 200 lei. Daily allowance is 100 lei. At return from delegation,the employee justifies the expenses and returns the unused treasuryadvance.

Granting the advance for delegation 542 = 5311 500

Recording justification of expenses at return:

Purchase and s ettlement of c onsumables 302 = 542 100

Settlement of accomodation 625 = 542 200

Recording daily allowance expenses 625 = 542 100

Refunding unused treasury advance 5311=542 100


7/7

7

fa c10-11 cash, current investments

Documents