AFAR 4.

0 Revenue Recognition
DRILL/ASSESSMENT

1. ABC Co. has sold a good to a buyer and wants to recognize revenue. Which of the following is an

indicator in PFRS 15 that control of a good has passed from ABC Co. to the buyer?

A. Buyer has scheduled delivery.

B. Buyer has a strong credit history, such that bad debts are reasonably estimable.

C. Buyer has paid in full for the good and the payment is nonrefundable.

D. Buyer has assumed the risk and rewards of ownership.

2. Which of the following is not an indicator in PFRS 15 that the customer is likely to have control over a

good?

A. asset warehoused by seller-affiliated third party

B. accepted the asset

C. legal title to the asset

D. physical possession of the asset

3. On June 1, X Co. received an order for 500 cupcakes. X Co. delivered the cupcakes to the client on

June 25. A P50 deposit was received on June 5 and the remaining P450 was paid on June 30. X Co.

likely would recognize revenue on ______.

A. June 1

B. June 5

C. June 25

D. June 30

4. Which of the following is not a criterion that revenue can be recognized over time?

A. The seller is enhancing an asset that the buyer controls as the service is performed.

B. The customer consumes the benefit of the seller's work as the seller performs the service.

C. The seller is creating an asset that has an alternative use to the seller, and the seller can receive

payment for its progress even if the customer cancels the contract.

D. none of these
AFAR 4.0 Revenue Recognition
DRILL/ASSESSMENT

5. On November 1, 2018, Swift Co. signed a one-year contract to provide handyman services on an P0

as-needed basis to Slow Co., with the contract to start immediately. Slow paid Swift P4,800 for the

one-year period on November 1, 2018.Swift should recognize revenue in 2018 in the amount of

______.

A.

B. P800

C. P2,400

D. P4,800

6. RB Co. Manufacturing agrees to manufacture bumper cars for Gio Amusement Parks. Under the

terms of the contract, 12 Banners will pay RB Co. a total of P60,000, and Gio can cancel the contract

if it so chooses but must pay RB Co. for work completed. RB Co. believes that, if Gio cancelled the

contract, RB Co. could sell the bumper cars to another amusement park and still make a profit. The

manufacturing contract is expected to last six months, and as of December 31, 2018, the job is 80%

complete. How much revenue should RB Co. recognize in 2018 for this contract?

A. P0

B. P12,000

C. P48,000

D. P60,000

7. Which of the following is not a characteristic of a distinct good or service?

A. It can be used on its own or in combination with other goods or services the seller could obtain

elsewhere.

B. It is not highly dependent on other goods or services in the contract.

C. It has a stand-alone selling price.

D. It is not interrelated with other goods or services in the contract.

AFAR 4.0 Revenue Recognition
DRILL/ASSESSMENT

8. For contracts that include more than one separate performance obligation, ______.

A. revenue is recorded over time at the fair value of each performance obligation

B. revenue is recognized in the amount of the contract price on the date the last separate

performance obligation is satisfied

C. the contract price is allocated to each performance obligation in proportion to the obligations'

stand-alone selling prices

D. revenue is recognized in the amount of the contract price on the date the contract is signed

9. R Company provides cleaning services and sells garbage bins to office clients. On June 1, R Co.

delivered 100 garbage bins to a client, and also entered into a five-year contract for R Co. to provide

cleaning services to that client. Which of the following is most likely to be true?

A. Revenue for the garbage bins and the cleaning services must be recognized on June 1.

B. Revenue for the garbage bins is recognized on June 1 and no revenue will be recognized for the

cleaning services until the end of the fifth year.

C. Revenue for the garbage bins is recognized on June 1 and revenue for the cleaning service is

recognized over the five years as those services are performed.

D. R Company should not recognize any revenue until the end of the fifth year.
AFAR 4.0 Revenue Recognition
DRILL/ASSESSMENT

10. On July 15, 2018, RDB & Co. signed a contract to provide Jong Tza Bakery with an ingredient-

weighing system for a price of P90,000. The system included finely tuned scales that fit into Jong

Tza's automated assembly line, RDB's proprietary software modified to allow the weighing system to

function in Jong Tza's automated system, and a one-year contract to calibrate the equipment and

software on an as-needed basis. (RDB competes with other vendors who offer ongoing calibration

contracts for RDB's systems.) If RDB was to provide these goods or services separately, it would

charge P60,000 for the scales, P10,000 for the software, and P30,000 for the calibration contract.

RDB delivered and installed the equipment and software on August 1, 2018, and the calibration

service commenced on that date.

Assume that the scales, software, and calibration service are all separate performance obligations.

How much revenue will RDB recognize in 2018 for this contract?

A. P0

B. P63,000

C. P74,250

D. P90,000

11. Grey Co. offers a discount on an extended warranty on its oPhone when the warranty is purchased at

the time the oPhone is purchased. The warranty normally has a price of P150, but Grey Co. offers it

for P120 when purchased along with an oPhone. Grey Co. anticipates a 75% chance that a customer

will purchase the extended warranty along with the oPhone. Assume Grey Co. sells 1,000 oPhones

with the extended warranty discount offer. What is the total stand-alone selling price that Grey Co.

would use for the extended warranty discount option for purposes of allocating revenue among the

performance obligations in those 1,000 oPhone contracts?

A. P0

B. P22,500

C. P30,000

D. P120,000
AFAR 4.0 Revenue Recognition
DRILL/ASSESSMENT

12. On April 1, Bayanihan Builder entered into a contract of one-month duration to build a barn for

Tulungan Company. Bayanihan is guaranteed to receive a base fee of P5,000 for his services in

addition to a bonus depending on when the project is completed. Tulungan created incentives for

Bayanihan to finish the barn as soon as he can without jeopardizing the structural integrity of the

barn. Tulungan offered to pay an additional 30% of the base fee if the project finished two weeks

early and 10% if the project finished a week early. The probability of finishing two weeks early is 30%

and the probability of finishing a week early is 60%.

What is the expected transaction price with variable consideration estimated as the expected value?

A. P4,750

B. P5,000

C. P5,500

D. P5,750

13. Sunny enters into a contract offering variable consideration. The contract pays him P1,000/month for

six months of continuous consulting services. In addition, there is a 60% chance the contract will pay

an additional P2,000 and a 40% chance the contract will pay an additional P3,000, depending on the

outcome of the consulting contract. Sunny concludes that this contract qualifies for revenue

recognition over time.

Assume that Sunny estimates variable consideration as the most likely amount. After Sunny has

recognized revenue for two months of the contract, he changes his assessment of the chance the

contract will pay him P3,000 to 70%. What adjustment to revenue should Sunny recognize to account

for that change in estimate?

A. debit of P1,000

B. debit of P334

C. credit of P1,000

D. credit of P334
AFAR 4.0 Revenue Recognition
DRILL/ASSESSMENT

14. Jharam Inc. entered into a contract to install a pipeline for a fixed price of P2,200,000. Jharam

recognizes revenue upon contract completion. Assume that estimated cost to complete is reasonably

reliable at each point in time.

Cost incurred Estimated cost to complete

2022 P250,000 P1,550,000

2023 1,600,000 500,000

2024 450,000 0

In 2024, Jharam would report gross profit (loss) of ______.

A. P100,000

B. P50,000

C. P123,000

D. P2,000

15. In 2018, RAC began work on a two-year fixed price contract project. RAC recognizes revenue over

time according to percentage of completion for this contract and provides the following information

(dollars in millions):

Accounts receivable, December 31, 2018 (from construction progress billings) P37.5

Actual construction costs incurred in 2018 P135

Cash collected on project during 2018 P105

Construction in progress, December 31, 2018 P207

Estimated percentage of completion during 2018 60%

What is the fixed contract price for RAC's project?

A. P120 million

B. P225 million

C. P345 million

D. P349.5 million
AFAR 4.0 Revenue Recognition
DRILL/ASSESSMENT

16. When it is difficult to reliably estimate the outcome of a contract that meets the criteria for

performance obligation satisfied over time, it is typically the case that ______.

A. expenses in excess of revenues are recognized

B. revenues in excess of expenses are recognized

C. an equal amount of revenue and expense is recognized

D. there is no predictable pattern of revenue and expense

17. KLM Restaurants sells franchises for an initial fee of P36,000 plus operating fees of P500 per month.

The initial fee covers site selection, training, computer and accounting software, and on-site

consulting and troubleshooting, as needed, over the first five years. On March 15, 2017, Tim Cruise

signed a franchise contract, paying the standard P6,000 down with the balance due over five years

with interest.

Assuming that the initial services to be performed by KLM subsequent to the signing are substantial

and that collection of the receivable is reasonably assured, the journal entry required at signing would

include a credit to ______.

A. contract liability for P36,000

B. contract liability for P30,000

C. franchise fee revenue for P36,000

D. franchise fee revenue for P6,000

End of Examination.