BAFINAR – ADVANCED FINANCIAL ACCOUNTING AND REPORTING I

PFRS 15 – REVENUE FROM CONTRACT WITH CUSTOMERS

PROBLEMS

Problem 1 (Five-step model). Globe, a telecom operator, entered into a contract with Ms. Kim on March 1 ,20x7. In line
with the contract Kim subscribes for Globe’s monthly plan for 12 months and in return Kim receives a free IPhone handset
from Globe. Kim will pay a monthly fee of P1,200. Kim gets the handset immediately after signing the contract.

Globe sells the same handsets for P3,600 and the same monthly plans for P800 per month without handsets.

1. What kind of contract between Globe and Kim?

a. Oral contract b. Written contract c. Customary business practice d. No contract
2. How many performance obligations?
a. 1 – performance obligation: network service (monthly/instalment plans)
b. 1 – performance obligation: IPhone handset
c. 2 – performance obligations: Network services (monthly/instalment plan) and IPhone handset
d. No performance obligation since there is no existing contract.
3. Determine the transaction price
a. P3,600 b. P9,600 c. P13,200 d. P14,400
4. Allocate the transaction price to performance obligations
a. None, since there is no contract
b. P9,600 network service and P3,600 for the handset
c. P 0 for network service and P13,200 for the handset
d. P10,473 for network service and P3,927 for the handset
5. What will be the timing of the revenue recognition?
a. None, since there is no contract
b. Network service and for the handset – both over time
c. Network service – over time and for the handset – point in time
d. Network service – point in time and for the handset – over time

Assume the same facts and information in Problem 1

6. On March 1, 20x7 the amount of accounts receivable to be recorded
a. None b. P3,927.00 c. P8,727.50 d. P12,654.50
7. On March 1, 20x7 the revenue from sales of goods amounted to
a. None b. P3,927.00 c. P8,727.50 d. P12,654.50
8. On March 31, 20x7 the amount of accounts receivable to be recorded
a. None b. P872.75 c. P1,200.00 d. P8,727.50
9. On March 31, 20x7, the revenue from network services amounted to
a. None b. P872.50 c. P1,200.00 d. P12,654.50
10. On December 31, 20x7, the total revenue amounted to
a. None b. P872.50 c. P1,200.00 d. P12,654.50

Problem 2 (Contract asset and receivable)

On January 1, 20x9, C Company enter into a contract to transfer Product X and Product Y to P Co. for P200,000. The
contract specifies that payment of Product X will not occur until Product Y is also delivered. In other words, payment will

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not occur until both Product X and Product Y are transferred to P. C determines that standalone price are P60,000 for
Product X and P140,000 for Product Y. C delivers Product X to P on February 1, 20x9. On March 1, 20x9 C delivers
Product Y to P.

1. On January 1, 20x9, the amount of accounts receivable to be recorded

a. None b. P60,000 c. P140,000 d. P200,000
1. On February 1, 20x9, the amount of accounts receivable to be recorded
a. None b. P60,000 c. P140,000 d. P200,000
2. On February 1, 20x9, the amount of revenue to be recorded
a. None b. P60,000 c. P140,000 d. P200,000
3. On March 1, 20x9, the amount of accounts receivable to be recorded
a. None b. P60,000 c. P140,000 d. P200,000
4. On March 1, 20x9, the amount of revenue to be recorded
a. None b. P60,000 c. P140,000 d. P200,000
Problem 3 (Contract Liability and Receivable)
On January 1, 20x9, C enters into a non-cancellable contract with R for the sale of an excavator for P700,000. The
excavator will be delivered to R on April 1, 20x9. The contract requires R to pay the P700,000 in advance on February 1,
2019 and R makes the payment on March 1, 20x9.
5. On January 1, 20x9, the amount of accounts receivable to be recorded
a. None b. P350,000 c. P700,000 d. P1,400,000
6. On January 1, 20x9, the amount of revenue to be recorded
a. None b. P350,000 c. P700,000 d. P1,400,000
7. On February 1, 20x9, the amount of accounts receivable to be recorded
a. None b. P350,000 c. P700,000 d. P1,400,000
8. On February 1, 20x9, the amount of revenue to be recorded
a. None b. P350,000 c. P700,000 d. P1,400,000
9. On April 1, 20x9, the amount of revenue to be recorded
a. None b. P350,000 c. P700,000 d. P1,400,000

Problem 4 (Contract Liability)

On March 1, 20x9, E Company enter into a contract to transfer a product to C Company on July 31, 20x9. It is agreed
that C will pay the full balance of P20,000 in advance on April 1, 20x9. The contract is non-cancellable. C, however, does
not pay until April 15, 20x9, and E delivers the product on July 31, 20x9. The cost of the product is P15,000
10. On March 1, 20x9, the amount of revenue to be recorded
a. None b. P1,000 c. P15,000 d. P20,000
11. On April 1, 20x9, the amount of revenue to be recorded
a. None b. P1,000 c. P15,000 d. P20,000
12. On April 15, 20x9, the amount of revenue to be recorded
a. None b. P1,000 c. P15,000 d. P20,000
13. On July 31, 20x9, the amount of sales revenue to be recorded
a. None b. P1,000 c. P15,000 d. P20,000

Problem 5 (Existence of a Contract)

14. On March 1, 20x7, Marc Co. enter into a contract to deliver a product to Josh, Inc. on June 15, 20x7. Josh agrees
to pay the full contract price of P4,000 on July 15, 20x7. The cost of the goods is P2,000. Marc delivers the
product to Josh on June 15, 20x7, and receives payment on July 15, 20x7. The contract exists on
a. May 10, 20x7 b. June 15, 20x7 c. July 15, 20x7 d. None of the above

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 15. ON July 1, 20x5 Ellsbury Inc. enter into a contract to deliver one of its specialty machineries to K Landscaping Co.
The contract requires K to pay the contract price of P2,500 in advance on July 15, 20x5. K pays Ellisbury on July
15, 20x5 and Ellisbury delivers the machinery (with cost of P1,600) on July 31, 20x5. The contract exist on
a. July 1, 20x5 b. July 15, 20x5 c. July 31, 20x5 d. No contract exists

Problem 6 (Timing of Revenue Recognition)

16. On February 1, HB Bank originated a loan for P50,000 at an interest rate of 7.2%. On March 1, an interest
payment of P300 was received. Which of the following best describes when interest revenue should be
recognized?
a. At a point in time (February 1) c. At a point in time (March 31)
b. At a point in time (March 1) d. Over time
17. Squeaky Shine provides for car washing service in Sampaloc, Manila. A three-month pass for automatic car wash
sells for P60, which entitles the customer for an unlimited number of car washes during the contract period.
Squeaky estimates that pass holders wash their cars equally throughout the three-month period. On December
1st, customers purchased P1,260 of the three-month passes, with purchases of the passes occurring evenly
throughout December. The amount of sales revenue on December 1
a. Zero b. P60 c. P210 d. P1,260
18. Based on #18, the sales revenue on December 31 amounted to
a. Zero b. P60 c. P210 d. P1,260
19. Lux Hotels Inc., has signed a service outsourcing contract with Deluxe Rooms, Inc for P3 million, which was
received in cash at contract inception. Under the agreement, Deluxe is obligated to clean and prepare over 5,000
hotel rooms managed by Lux Hotel on a daily basis from August 1, 20x6 to July 31, 20x7.
When should Lux Hotels recognize revenue?
a. No transaction b. No revenue c. Point in time d. Over time
20. Based on #20, the amount of sales revenue on August 1, 20x6?
a. Zero b. P1,250,000 c. P1,500,000 d. P3,000,000
21. Based on #20, the sales revenue on December 31, 20x6 amounted to
a. Zero b. P1,250,000 c. P1,500,000 d. P3,000,000
22. Agrifoods, Inc. prepares and delivers agricultural products to industrial-scale kitchens and food service providers.
One of its key customers is Home Kitchen & Co, which provides cafeteria solutions for corporations and
universities. On January 1, 20x6, Agrifoods obtained a one-year contract to suplly a pre-specified amount of
vegetables to Home Kitchen, and received P600,000 in cash. Then on March 15, Agrifoods hired Home to run one
of its employee cafeterias for a period of six months from April to September, and paid P70,000 in cash. For
similar arrangements, Home usually charged P50,000
The sales revenue on January 31 amounted to
a. Zero b. P50,000 c. P70,000 d. P600,000
23. Based on #23, the sales revenue for the year 20x6 amounted to:
a. Zero b. P50,000 c. P580,000 d. P600,000
24. Johnson sells P100,000 of product to Robbins and also purchases P10,000 of advertising services from Robbins.
The advertising services have a fair value of P8,000. Johnson should record revenue on its sale of product to
Robbins of
a. P98,000 b. P92,000 c. P90,000 d. Zero
25. Joey & Co. manufactures various types of golf clubs to third party vendors. On April 1, 20x6, Joey delivers a large
quantity of golf clubs to Aparri Country Club. Under the sales agreement, Aparri is obligated to pay Joey & Co
P200,000 within six months. On May 1, Joey & Co purchases for cash the right to advertise its products during
Aparri’s annual golf tournament for P3,000. Aparri normally charges P2,500 for such services. On August 15,

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 Aparri pays Joey & Co all amounts owed. The amount of revenue that Joey & Co should recognize on its sale of
golf clubs to Aparri.
a. Zero b. P199,500 c. P200,000 d. P203,000

Problem 7 (Performance Obligation)

Windsor Windows manufactures and sells custom storm windows for enclosed parches. Windsor also provides installation
service for the windows. The installation process does not involve charges in the windows, so this service can be provided
by other vendors. Windsor enters into the following contract on June 1, 20x5, with a local homeowner. The customer
purchases windows for a price of P3,500 and choose Windsor to do the installation. Windsor charges the same price for
the windows irrespective of whether it does the installation or not. The price of installation service is estimated to have a
fair value of P900. The customer pays Windsor P3,000 (which equals the fair value of the windows, which have a costs of
P1,700) upon the delivery and the remaining balance upon installation of the windows. The windows are delivered on
August 1, 20x5. Windsor completes the installation on September 15, 20x5 and the customer pays the balance due
(Round the amounts to nearest peso)
26. How many performance obligations exist in this contract on June 1, 20x5?
a. 0 b. 1 c. 2 d. 3
27. How many performance obligations exist in this contract on August 1, 20x5?
a. 0 b. 1 c. 2 d. 3

A local newspaper called “BSAcsi” charges an annual subscription fee of P1,350. Customer prepay their subscriptions and
receive 260 issues over a year. To attract more subscribers, the company offered new subscribers the ability to pay
P1,300 for an annual subscription that also would include a coupon to receive a 40% discount on a one-hour ride through
Rizal Park in a carabao-drawn carriage. The list price of a carriage ride is P1,250 per hour. The company estimates that
approximately 30% of the coupons will be redeemed.
28. How much revenue should BSA recognize upon receipt of P1,300 subscription price?
a. P 0 b. P 10,800 c. P12,500 d. P13,000
29. Based on #29, how many performance obligations exist in this contract?
a. 0 b. 1 c. 2 d. 3
30. The journal entry to recognize sale of 10 new subscriptions, clearly identifying the revenue or deferred revenue
associated with each performance obligation
a. Cash P13,000 c. Cash P13,000
Deferred revenue - subscription P11,700 Deferred revenue – coupon P13,000
Deferred revenue – coupon 1,300 d. Cash P13,000
b. Cash P13,000 Deferred revenue – subscription P11,700
Deferred revenue – subscription P13,000 Deferred revenue – coupon 1,300