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The entity continues to assess the contract to determine whether the
“probable of collection” criterion is subsequently met or whether the events
above (‘a’ or ‘b’) have occurred.
5. Solution:
Estimated
stand-alone
selling As
Product Estimation method prices Allocation allocated
N/A (Stand-alone (100 x
X price) 50 50/150) 33
Adjusted market (100 x
Y assessment 25 25/150) 17
Expected cost plus a (100 x
Z margin (50 x 150%) 75 75/150) 50
Total 150 100
The entity recognizes revenue over time by measuring the progress towards
complete satisfaction of the performance obligation.
7. Solution:
2
Asset Expense
Design services - PFRS 15 (40,000 x 6/7) 34,286
Amortization of design services (40,000 ÷ 7) 5,714
8. Solution:
Jan.
1, No entry
20x8
Jan. Contract asset (₱1,000 x 480/1,200a) 400
3, Revenue 400
20x8
Mar. Receivable 1,000
31, Contract asset 400
20x8 Revenue (₱1,000 x 720/1,200a) 600
Apr. Cash 1,000
8, Receivable 1,000
20x8
a
Sum of relative stand-alone selling prices: (480 + 720) = 1,200
9. Solution:
Stand-alone As Discoun
Product Allocation
prices allocated t
A 40 N/A 40 -
B 55 (60 x 55/100) 33 22
C 45 (60 x 45/100) 27 18
Residual approach
D N/A -
(130K - 40K - 33K - 27K) 30
Total 140 130 40
The use of the residual approach is appropriate because the ₱30 allocated to
Product D is within the range of its observable selling prices (₱15 - ₱45).
10. Solution:
Date Cash 10,000
Revenue (₱10,000 x 97%) 9,700
Refund liability (₱10,000 x 3%) 300
3
Date Cost of goods sold (97 x ₱60) 5,820
Asset for right to recover product to be
returned (3 x ₱60) 180
Inventory (100 x ₱60) 6,000
11. Solution:
(a) Contract inception:
Jan. 1, 20x1
Cash 4,000
Contract liability 4,000
(b) During the two years from contract inception until the transfer of the asset, the
entity adjusts the promised amount of consideration (in accordance with paragraph 65
of IFRS 15) and accretes the contract liability by recognizing interest on ₱4,000 at six
per cent for two years:
The entity recognizes revenue over time by measuring its progress towards
complete satisfaction of that performance obligation. Since the monthly
services are rendered evenly throughout the year, revenue may be
recognized on a straight-line basis (i.e., ₱100,000 per month).
2. Answer:
4
The performance obligation is satisfied over time because the customer
simultaneously receives and consumes the benefits of the entity’s
performance – which is making the health clubs available for the customer to
use as and when the customer wishes. The extent to which the customer
uses the health clubs does not affect the amount of the remaining goods and
services to which the customer is entitled.
The entity recognizes revenue over time by measuring its progress towards
complete satisfaction of that performance obligation. Since the monthly
services are rendered evenly throughout the year, revenue may be
recognized on a straight-line basis (i.e., ₱500 per month).
3. Solution:
Receivable (100 x ₱150) 15,000a
Revenue (100 x ₱125) 12,500
Refund liability (contract liability) 2,500 b
a
Consideration is due when control of the products transfer to the customer.
Therefore, the entity has an unconditional right to consideration (i.e., a
receivable) for ₱150 per product until the retrospective price reduction applies
(i.e., after 1 million products are shipped).
b
The refund liability represents a refund of ₱25 per product, which is
expected to be provided to the customer for the volume-based rebate (i.e.,
the difference between the ₱150 price stated in the contract that the entity
has an unconditional right to receive and the ₱125 estimated transaction
price).
4. Solutions:
March 31, 20x8: (75 units x ₱100) = ₱7,500
5. Solution:
Requirement (a):
The contract includes a discount of ₱40 on the overall transaction (₱140 sum
of stand-alone selling prices less ₱100 transaction price).
Requirement (b):
Produc Stand-alone As Discoun
Allocation
t prices allocated t
A 40 N/A 40 -
B 55 (60 x 55/100 a) 33 22
C 45 (60 x 45/100 a) 27 18
Total 140 100 40
5
a
(55 + 45) = 100
6. Solutions:
(a) When the product is transferred to the customer:
(c) When the right of return lapses (the product is not returned):
Receivable ₱100
Revenue ₱100
Until the entity receives the cash payment from the customer, interest
revenue would be recognized in accordance with PFRS 9. In determining the
effective interest rate in accordance with PFRS 9, the entity would consider
the remaining contractual term.
7. Solutions:
Case A
1,000,000 – the contract price is deemed the cash selling price because the
contractual rate of interest of five per cent reflects the credit characteristics of the
customer.
OR
Monthly cash flow 18,871
Multiply by: PV of ordinary annuity @ 0.004167 a, n=6 52.99020
Sale revenue (answer is rounded-off) 999,978
a
5% annual rate ÷ 12 months = 0.004167
Case B
Monthly cash flow 18,871
Multiply by: PV of ordinary annuity @ 0.01b, n=6 44.95504
Sale revenue 848,347
b
12% annual rate ÷ 12 months = 0.01
9. Solutions:
Requirement (a): Performance obligations
1. machine
2. spare parts
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3. custodial services
10. Solution:
The contract modification results to the addition of services that are distinct.
However, the price of the additional services does not reflect their stand-
alone selling price. Therefore, the contract modification shall be accounted for
as a termination of the existing contract and the creation of a new
contract.
Accordingly, the entity recognizes revenue of ₱100,000 per year in the 1st
and 2nd years and ₱70,000 per year in the 3rd, 4th, 5th, and 6th years.
Revenue per year after the contract modification is computed as follows:
Summary of answers:
Year Revenue
1 100,000
2 100,000
3 70,000
4 70,000
5 70,000
6 70,000
480,00
0
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PROBLEM 4: CLASSROOM ACTIVITY
ANSWERS
STEP 1: Identify the contract with the customer
Checklist
PFRS 15 Criteria
(/ X)
a. The contracting parties have approved the contract and are (1)
committed to perform their respective obligations;
REASON/INDICATOR:
(2)_Signing of an enforceable contract._
b. The entity can identify each party’s rights regarding the (3)
goods or services to be transferred;
c. The entity can identify the payment terms for the (4)
goods or services to be transferred;
REASON/INDICATOR:
(5) (Make a reference to certain paragraphs in the
contract) _Paragraphs 1(a) to (c) of the contract
REASON/INDICATORS:
(9) The credit investigation yielded a favorable result.
(10) The contract requires a down payment (earnest money)
and, in case of default, ABC Co. is entitled to a significant
portion of the amounts collected.
CONCLUSION: Does the contract qualify for accounting under PFRS 15?
State your reason.
(11) Yes, because all of the criteria in ‘Step 1’ are complied with
(13) State whether the performance obligation(s) is/are satisfied over time or
at a point in time. at a point in time
JOURNAL ENTRIES:
(17) Provide the entry at contract inception.
Date Accounts Debits Credits
10.3.201 Cash 300,000
5
Contract liability 300,000
to record the receipt of the
earnest money (or similar
description)
(18) Assume that the next entry made by ABC Co. on the contract is on
December 31, 2015. What would be this entry?
Date Accounts Debits Credits
12.31.201 Cash 175,000 a
5
Contract liability 175,000
to record the collection of
installment payments for the
months of October,
November and December
(or similar description)
a
(58,333.33 x 3) = 175,000
PRESENTATION
How should the contract be presented in ABC Co.’s December 31, 2015
statement of financial position?
Checklist
ACCOUNT AMOUNT
(/ X)
(19) Contract asset X -
(20) Contract liability 475,000
(21) Receivable X -
(22) Assume that the January 31, 2016 check is dishonored and the contract
is settled on this date, in accordance with the terms of the contract. What is
the journal entry?
Date Accounts Debits Credits
1.31.201 Contract liability 475,000 b
6
Cash 17,500 c
Revenue 457,500
to record revenue for the
non-refundable payments
received (or similar
description)
b
(300,000 + 175,000) = 475,000
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c
(175,000 x 10%) = 17,500
(23) Disregard the assumption in number (18). Assume that the consideration
is fully paid and the land is transferred to the buyer. Provide the compound
journal entries.
Date Accounts Debits Credits
9.30.201 Cash 58,333.33
6
Contract liability 941,666.67
Revenue 1,000,000
to record the satisfaction of
the performance obligation
(or similar description)
9.30.201 Cost of sales 400,000
6
Inventory 400,000
to record the cost of the land
sold as expense (or similar
description)
PROFIT OR LOSS
Use the assumption in number (23). Determine the effects of the contract in
ABC Co.’s 2015 and 2016 profit or loss, respectively. Disregard taxes and
registration costs.
2015 2016
(24) (25)
Revenue 0 1,000,000
Expenses 0 (400,000)
Profit 0 600,000
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PROBLEM 6: MULTIPLE CHOICE - COMPUTATIONAL
1. D PFRS 15 does not apply to non-monetary exchanges. Therefore, no
revenue shall be recognized from such transactions.
2. E
Inventory – diesel (CA of asset given up) ₱3.8M
Inventory – premium (CA of asset given up) ₱3.8M
3. B
Solution:
Sale to Customer W 5,000
Sale to Customer X 20,000
Sales returns (20,000 x 10%) (2,000) 18,000
Sale to Customer Y 10,000
Sales returns (10,000 x 5%) (500) 9,500
Sale to Customer Z -
Sale to Customer Voiz&Gurlz 10,000
Total net sales revenues 42,500
11
If the outcome of a performance obligation cannot be reasonably
measured but the entity expects to recover the costs incurred in
satisfying the performance obligation, revenue shall be recognized
only to the extent of the costs incurred until such time that the
outcome of the performance obligation can be reasonably measured.
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