Professional Documents
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Chapter 3 Revenue From Contracts With Customers
Chapter 3 Revenue From Contracts With Customers
Chapter 3 Revenue From Contracts With Customers
The entity accounts for the non-refundable ₱50,000 payment as a deposit liability. The entity
continues to account for the initial deposit, as well as any future payments of principal and
interest, as a deposit liability, until such time that the entity is able to conclude that it is probable
that the entity will collect the consideration or one of the following events has occurred.
a. the entity has no remaining obligations to transfer goods or services to the customer and all,
or substantially all, of the consideration promised by the customer has been received by the
entity and is non-refundable; or
b. the contract has been terminated and the consideration received from the customer is non-
refundable.
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.
Because the promise of maintenance services is a promise to transfer goods or services in the
future and is part of the negotiated exchange between the entity and the distributor, the entity
determines that the promise to provide maintenance services is a performance obligation. The
entity concludes that the promise would represent a performance obligation regardless of
whether the entity, the distributor, or a third party provides the service. Consequently, the entity
allocates a portion of the transaction price to the promise to provide maintenance services.
5. Solution:
Estimated
stand-alone As
Product Estimation method selling prices Allocation allocated
X N/A (Stand-alone price) 50 (100 x 50/150) 33
Y Adjusted market assessment 25 (100 x 25/150) 17
Z Expected cost plus a margin (50 x 150%) 75 (100 x 75/150) 50
Total 150 100
6. Answer: The performance obligation is satisfied over time because of the following
reasons:
a. The development of the professional opinion does not create an asset with alternative use
to the entity because the professional opinion relates to facts and circumstances that are
specific to the customer. Therefore, there is a practical limitation on the entity’s ability to
readily direct the asset to another customer.
b. The entity has an enforceable right to payment for its performance completed to date for
its costs plus a reasonable margin, which approximates the profit margin in other
contracts.
The entity recognizes revenue over time by measuring the progress towards complete satisfaction
of the performance obligation.
7. Solution:
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. 3, Contract asset (₱1,000 x 480/1,200a) 400
20x8 Revenue 400
Mar. Receivable 1,000
31, Contract asset 400
20x8 Revenue (₱1,000 x 720/1,200a) 600
Apr. 8, Cash 1,000
20x8 Receivable 1,000
a
Sum of relative stand-alone selling prices: (480 + 720) = 1,200
9. Solution:
Stand- As
Produc Discoun
alone Allocation allocate
t t
prices d
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 - -
30
27K)
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
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: