CPA REVIEW SCHOOL OF THE PHILIPPINES

Manila
FINANCIAL ACCOUNTING AND REPORTING VALIX/VALIX/ESCALA/SANTOS/DELA CRUZ

DEFERRED REVENUE
1. An entity, a grocery retailer, operates a customer loyalty program. The entity grants program
members loyalty points when they spend a specified amount on groceries. Program members can
redeem the points for further groceries. The points have no expiry date. During 2021, the sales
amounted to P7,000,000 based on stand-alone selling price. During the year, the entity granted
10,000 points. But management expected that only 80% or 8,000 points will be redeemed. The
stand-alone selling price of each loyalty point is estimated at P100. On December 31, 2021, 4,800
points have been redeemed. In 2022, management revised its expectations and now expected that
90% or 9,000 points will be redeemed altogether. During 2022, the entity redeemed 2,400 points.
1. What amount should be reported as sales revenue for 2021?
a. 7,000,000
b. 8,000,000
c. 6,125,000
d. 6,650,000
2. What is the revenue earned from loyalty points for 2022?
a. 700,000
b. 175,000
c. 210,000
d. 200,000
2. An entity is a manufacturer of body wash and sells its product to local retailers. Retailers sell the
product to its customers and for each product purchased by the customers, a coupon of P50 discount
is given and may be used on future purchase of the same product. Retailers are reimbursed for the
discount by the manufacturer when customers redeem their coupons. During the current year, the
manufacturers sold 30,000 products to the retailers at P150 each product. It is expected that 75% of
the coupons will be redeemed. At year-end, the manufacturer paid the retailer P200,000 as
reimbursement. The stand-alone selling price of the rebate coupon is equal to the discount on the
products sold during the year adjusted by the expected redemption.
1. What amount should be recorded as sales revenue during the current year?
a. 3,600,000
b. 4,500,000
c. 3,800,000
d. 5,625,000
2. What amount should be reported as rebate liability at year-end?
a. 1,125,000
b. 1,500,000
c. 900,000
d. 700,000
3. An entity sells shelf organizers for P1,500 each. There is a promotion wherein if a customer buys 3
pieces in a single transaction, a customer receives a coupon for one additional piece for free. During
the 2021, the entity sold 1,800 pieces or an equivalent of 600 free additional pieces. It is expected
that 75% of the coupons will be redeemed. During 2022, the entity delivered 150 free additional
pieces. The stand-alone selling price of the coupons is equal to the selling price of the free product
adjusted by the expected redemption.
1. What amount should be recorded as sales revenue for 2021?
a. 2,160,000
b. 2,700,000
c. 3,375,000
d. 3,600,000
2. What amount should be as deferred revenue from coupons on December 31, 2022?
a. 540,000
b. 135,000
c. 405,000
d. 0
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4. An entity is a retailer that sells clothing. The entity has launched a promotional campaign wherein
customers who buy clothing with a single purchase of at least P10,000 shall be granted “40%
discount coupons” on future purchases. The coupons may be used for 3 months following
immediately the campaign. During the campaign, the entity sold clothing worth P7,600,000 and
issued simultaneously 100 “40% discount coupons” to the customers. It is expected that 80% of the
coupons will be redeemed and the customers using the discount coupons will spend an average price
of P12,500. The stand-alone selling price of the discount coupons is equal to the amount of discount
on future purchases adjusted by the expected redemption.
1. What amount should be recorded initially as sales revenue?
a. 7,600,000
b. 7,220,000
c. 7,200,000
d. 8,000,000
2. What amount should be recorded as sales revenue from the redemption of discount coupons?
a. 600,000
b. 980,000
c. 750,000
d. 400,000
5. An entity sells gift certificates worth P5,000,000 to customers in exchange for future delivery of its
product. The certificates are nonrefundable and the entity expects that 10% of the certificates will
not be redeemed. During the year, the entity redeemed gifts certificates worth P1,800,000. The
breakage revenue is equal to the proportion of value of certificates redeemed to the expected value
of certificates to be redeemed multiplied by the expected value of breakage.
Expected value of breakage (5,000,000 x 10%) 500,000
Expected value of certificates to be redeemed (5,000,000 x 90%) 4,500,000
Value of certificates redeemed 1,800,000
1. What amount should be reported as deferred revenue from gift certificates at year-end?
a. 5,000,000
b. 3,200,000
c. 4,500,000
d. 3,000,000
2. What amount should be recognized as breakage revenue from gift certificates for current year?
a. 500,000
b. 300,000
c. 200,000
d. 0
6. An entity sells equipment service contracts that cover a two-year period. The sale price of each
contract is P600. The past experience is that, of the total pesos spent for repairs on service contracts,
40% is incurred evenly during the first contract year and 60% evenly during the second contract
year. The entity sold 1,000 contracts evenly throughout 2021.
1. What is the contract revenue for 2021?
a. 120,000
b. 240,000
c. 300,000
d. 150,000
2. What amount should be reported as deferred contract revenue on December 31, 2021?
a. 540,000
b. 480,000
c. 360,000
d. 300,000
3. What is the contract revenue for 2022?
a. 180,000
b. 360,000
c. 300,000
d. 120,000
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