QUIZZER IN PFRS 15

FOR #1 & 2

#3

#4
In which of the following contracts can a single performance obligation be identified?
a. a contract to provide a mobile phone handset and 12 months ‘network services
b. a contract to manufacture and deliver 5 customised machines at regular intervals over a period
of 10months
c. a contract to transfer a software licence and perform a customized installation service in order
that the software interfaces with the customer’s existing software applications
d. a contract to provide goods to a customer: the seller has historically provided maintenance
services for no additional consideration to this customer, although the written contract does not
include this promise

A performance obligation is distinct if the customer can benefit from the good or service on its
own or with other resources readily available to them and the seller’s promise to transfer the
good or service is separately identifiable from other promises in the contract. A promise to
transfer goods or services is separately identifiable if the seller does not provide a significant
service of integrating the good or service with others promised in the contract , the good or
service does not significantly modify of customize another good or service promised in the
contract or the good or service is not highly dependent on other goods or services in the contract.
In C, the provision of the licence is highly dependent on the customized installation service.
Therefore, these are not separately identifiable promises/distinct performance obligations. The
contract therefore represents a single performance obligation.
In all other cases each good or service provide is separately identifiable and does not rely on or is
not integrated with, other promises in the contract.
#5
Step 1 of the IFRS 15 five-step model requires the contract with the customer to the identified.
IFRS 15 is applied only if a contract has specific attributes. To which one of the following
contracts is IFRS 15 NOT applied?
a. an oral contract with a customer to deliver goods at a specified price with payment on delivery
b. a contract to deliver goods to a customer that entitles the customer to return the goods in
exchange for a full refund
c. a contract to receive payment from a corporate customer to invest in continued research and
development. Exactly how the money is spent is at the discretion of the recipient
d. A contract with a customer that operates in a region that is suffering severe economic recession
meaning that at the inception of the contract only 90 per cent of the contract price is expected to
be received from the customer

A contract may be oral, written or implied and must be between an entity and its customer. The
contract must:
• be approved by the parties to it
• have commercial substance
• identify each parties’ rights and payment terms.
In addition, it must be likely that the entity will collect consideration that is entitle led to
(although this may be subject to a price concession, as in cases B and D).
In the case of C, although the contract is with a customer, that customer is not acting in the
capacity of customer within the context of the contract. This is because the payment to be made
is not in exchange for goods or services.

#6
On 25 June 2021 G. Anderson received an order from a new customer, Julia Segovia. for
products with a sales value of P900,000. Julia Segovia enclosed a deposit with the order of
P90,000.
On 30 June 2021 G. Anderson had not completed credit checks on Julia Segovia and had not
despatched any goods. G. Anderson is considering the following possible entries for this
transaction in its financial statements for the year ended 30 June 2021.
(i) Create a trade receivable for P810,000.
(ii) Include P90,000 in revenue for the year.
(iii) Recognise P90,000 as a contract liability.
(iv) Include P900,000 in revenue for the year.
(iv) Do not include anything in revenue for the year
According to IFRS 15 Revenue from Contracts with Customers, how should G. Anderson record
this transaction in its financial statements for the year ended 30 June 2021?
a. (i) and (iv) only c. (ii) and (v) only
b.(ii) and (iv) only d.(iii) and (v) only

No sale has taken place as control of the goods has not been transferred, but G. Anderson must
recognize a contract liability to reflect the fact that it is has received P90,000 prior to transferring
goods to its customer

#7
Ivana Alawi entered into a 12-month contract to sell costs to a fashion retailer on 1 October
20X5. The contract specified a price of P200 per cost, which would be reduced to P175 per cost
if a minimum of 400 were purchased in the year. During the first six months of the contract, the
retailer purchased 150 costs and Ivana Alawi determined that this level of demand would
continue into the second half of the year. In May 20X6, due to a famous singer wearing one of
the costs, demand increased considerably, and the retailer purchased a further 500 costs in total
between 1 April 20X6 and 30 September 20X6.
What revenue from the contract should Ivana Alawi recognize in its financial statements for the
years ended 31 March 20X6 and 20X7?
Y/e 31 March 20X6 Y/e 31 March 20X7
a.P26,250 P87,500
b.P30,000 P83,750
c.P30,000 P87,500
d.P30,000 P100,000

Variable consideration is included in the transaction price only if it is highly probable that a
significant amount will not be reversed. In the first six months it is not expected that more than
400 coats will be sold to the retailer and therefore a significant reversal of revenue is not highly
probable. First half sales (P200 X 150) are P30,000 as the price reduction is not highly probable.
In the second six months of the contract an unexpected increase in units sold means that the price
reduction is triggered.
The revenue recognized in this period include an adjustment to revenue recognized in the first
half of the contract
Second half sales (P175 x 500)
P 87,500
Adjustment to first half sales (P25 x 150)
( 3,750)
Revenue
P 83,750

#8
Hay Na Co enters into a contract on 1 July 2025 to make and deliver furniture to a hotel chain in
two years’ time, when a new hotel is due for completion. Hay Na Co offers its customer the
opportunity to pay P6,000,000 on delivery or P5,144,000 at the inception of the contract on 1
July 2025. The customer pays the lower amount immediately. The interest rate implicit in the
contract is 8 per cent and Hay Na Co’s incremental borrowing rate is 7 per cent.
What contract liability is recognized in Hay Na Co’s financial statements in the year ended 30
June 2026?
a. P5,144,000 c. P5,555,520
b. P5,504,000 d.P6,000,000

The transaction includes a significant financing component that benefits Hay Na Co. On 1 July
2025, the cash advance is recognized by Hay Na Co as a contract liability. Over the year to 30
June 2026, in accordance with IFRS 15 the contract liability balance accrues interest at Hay Na
Co incremental borrowing rate (the rate that reflects the credit characteristics of the party
receiving financing).
Contract liability (1 July 2025)
5,144 000
Interest at 7%
360 000
Contract liability (30 June 20X6)
5,504 000

#9
Company W enters into a contract with Company X to deliver goods with a fair value of
P350,000. The contract stipulates that Company X pays for these goods through the provision of
services with a fair value of P370,000.
Company Y enters into a contract with Company Z to deliver 1000 scented candies at a unit price
of P20. At the inception of the contract, as an incentive. Company Y provides company Z with a
P500 credit against future contracts for the purchase of scented candies. What amount of revenue
is recognised by Company W and Company Y in respect of these contracts?
Company W Company Y
a.P350,000 P19,500
b.P350,000 P20,000
c.P370,000 P19,500
d.P370,000 P20,000
Non-cash consideration is measured at its fair value if this can be reasonably estimated.
Consideration payable to a customer (including vouchers, coupons and credits) is accounted for
as a reduction of transaction price.

#10
Smeaton Catering Equipment Co (SCE) enters into a contract with a customer on 18 August
2025 to deliver a commercial grade mixer, mincer and blender. The contract price is P2,200,
payable in six months. SCE regularly sells the mincer and blender to customers in a bundle,
priced at P1200. It also sells each item individually, priced as follows:
Mixer P1,000
Mincer P1,100
Blender P900
SCE’s incremental six-month borrowing rate is 5 per cent.
How much of the P2,200 transaction price is allocated to the mixer?
a. P698 c.P952
b. P733 d.P1,000

P2,200 is payable in 6 months’ time. IFRS 15 does not require a separate financing component to
be accounted for if the period of time between the transfer of goods and payment of
consideration is 12 months or less.
As mincers and blenders are regularly sold in a bundle which a discount equal to that in the
contract the full P800 discount (P 1,000 + P1,100 + P,900 – P2,200) is allocated to the mincer
and blender. Therefore, the transaction price allocated to the mixer is the same as its standalone
selling price

11. A contract
a. must be in writing to be an enforceable contract.
b. is an agreement that creates enforceable rights and obligations.
c. is enforceable if each party can unilaterally terminate the contract.
d. does not need to have commercial substance.

12. The first step in the process for revenue recognition is to

a. determine the transaction price.
b. identify the contract with the customer.
c. allocate the transaction price to the separate performance obligations.
d. identify the separate performance obligations in the contract.

13. The second step in the process for revenue recognition is to

a. allocate transaction price to the separate performance obligations.
b. determine the transaction price.
c. identify the contract with customers.
d. identify the separate performance obligations in the contract.

14. The third step in the process for revenue recognition is to

a. determine the transaction price.
b. identify the separate performance obligations in the contract.
c. allocate transaction price to the separate performance obligations.
d. recognize revenue when each performance obligation is satisfied.

15. The fourth step in the process for revenue recognition is to

a. recognize revenue when each performance obligation is satisfied.
b. identify the separate performance obligations in the contract.
c. allocate transaction price to the separate performance obligations.
d. determine the transaction price.

16. The last step in the process for revenue recognition is to

a. allocate transaction price to the separate performance obligations.
b. recognize revenue when each performance obligation is satisfied.
c. determine the transaction price.
d. identify the contract with customers.

17. Which of the following transactions is NOT within the scope of IFRS 15 Revenue from
Contracts with Customers?
a. the sale of a non-controlling equity shareholding owned by a retailer
b. the sale of an investment property owned by a manufacturing company
c. the sale of an extended warranty by a manufacturer of electrical goods
d.an agreement licensing another party to use an anti-virus package created by software designer

The sale of a non-financial asset, such as investment property or plant, and equipment, falls
within the scope of IFRS 15. Contracts relating to financial instruments and group interests are,
however, out of scope.

18. PFRS 15 will replace the following standards and interpretations except.
a. PAS 11 c. SIC 13
b. PFRIC 15 d. PFRIC 18

PFRS) 15 will replace the following standards and interpretations:

• PAS 18 Revenue
• PAS 11 Construction Contracts
• SIC 31 Revenue – Barter Transaction Involving Advertising Services
• PFRIC 13 Customer Loyalty Programs
• PFRIC 15 Agreements for the Construction of Real Estate and
• PFRIC 18 Transfer of Assets from Customers

19. A contract can be agreed in writing, orally, or through other customary business practices. An
entity can only account for revenue if the contract meets all of the following criteria:
I. the parties to the contract have approved the contract and are committed to perform their
respective obligations
II. the entity can identify each party’s rights regarding the goods or services to be transferred
III. the entity can identify the payment terms for the goods or services to be transferred
IV. the contract has commercial substance, and
V. it is probable that the entity will collect the consideration to which it will be entitled in
exchange for the goods or services that will be transferred to the customer
a. I, II, V c. I, II, IV, V
b. All of them d. II, III, IV

20. A good or service is distinct (or separable) if both of the following criteria are met:
Statement 1. The customer can benefit from the good or service in its own, or when combined with the customer’s
available resources; and
Statement 2. The promise to transfer the goods or service is separately identifiable from other goods or services in
the contract.
a. I only c. Both I & II
b. II only d. None of them

21. A transfer of good or service is not separately identifiable (or inseparable) if the good or
service is, except.
A. is not integrated with other (not included with other products) goods or services in the
contract; or
B. does not modify or customize another good or service (cannot modify other product) in the
contract; or
C. does not depend (independent to other products) on or relate to other goods or services
promised in the contract.
D. All of them is not separately identifiable

Therefore, If a promise to transfer a good or service is not distinct (not separable or inseparable)
from other goods or services in a contract, then the goods or services are combined into a single
performance obligation.

22. One of two methods should be used to estimate the amount of variable consideration of
revenue to recognize whichever method gives the best prediction:
a. Expected value c. Most probable amount
b. Most likely amount d. A or B

The chosen method should be applied consistently throughout the contract.

Estimating Variable Consideration

When an amount to be received depends on some uncertain future event, the seller still should
include the uncertain amount in the transaction price by estimating it.

▪ Expected Value: the sum of possible amounts or probability-weighted amount in a range of

possible consideration amounts:
1. May be appropriate if a company has a large number of contracts with similar characteristics.
2. Can be based on a limited number of discrete outcomes and probabilities.

▪ Most Likely Amount: The single most likely amount in a range of possible consideration
outcomes.
On the other hand, if only two outcomes are possible, the most likely amount might be the best
indication of the amount the seller will likely receive

23. Consideration Payable to the Customer

Statement I: If consideration is paid to a customer in exchange for a distinct good or service, then
it is essentially a purchase transaction and should be accounted for in the same way as other
purchases from suppliers.
Statement II: Assuming that the consideration paid to a customer is not in exchange for a distinct
good or service, an entity should account for it as a reduction of the transaction price.
a. I only c. Both I & II
b. II only d. None of them

24. Holt Industries received a P2,000 prepayment from the Ramirez Company for the sale of new
office furniture. Holt will bill Ramirez an additional P3,000 upon delivery of the furniture to
Ramirez. Upon receipt of the P2,000 prepayment, how much should Holt recognize for a
contract asset, a contract liability, and accounts receivable?
a. Contract asset: P0; contract liability: P2,000, accounts receivable, P0.
b. Contract asset: P0; contract liability: P0, accounts receivable, P0.
c. Contract asset: P2,000; contract liability: P0, accounts receivable, P0.
d. Contract asset: P0; contract liability: P0, accounts receivable, P2,000.

Answer: (a) - Holt has a contract liability, deferred revenue, of P2,000. It never has a contract
asset because it hasn’t satisfied a performance obligation for which payment depends on
something other than the passage of time. It does not have an accounts receivable for the P3,000
until it delivers the furniture to Ramirez.

25. On March 1, 20x7, Giordano Company enters into a contract to transfer a product to Hotter
on July 31, 20x7. The contract is structured such that Warmer is required to pay the full contract
price of P57,000 on August 31, 20x7.The cost of the goods transferred is P34,200. Giordano
delivers the product to Hotter on July 31, 20x7.The contract exist on?
a. March 1, 20x7 c. August 31, 20x7
b. July 31, 20x7 d. None of the above

Answer: (b) - No entry is required on March 1, 20x7, because neither party has performed on the
contract. That is, neither party has an unconditional right as of March 1, 20x7.
The entry on July 31, 20x7, to record the sale and related cost of goods sold is as follows:
Accounts receivable. . . . . . . . . . . . . . 57,000
Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57,000
Cost of sales. . . . . . . . . . . . . . . . . . . .34,200
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . 34,200
The entry to record the receipt of cash on August 31, 20x7 is a follows:
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . 57,000
Accounts receivable . . . . . . . . . . . . . . . . . . 57,000
A key attribute of the revenue arrangement is that the signing of the contract by the two parties is
not recorded until one or both of the parties perform under the contract. Until performance
occurs, no net asset or net liability occurs.

Items 26 and 27 are based on the following information:

Windsor Windows manufactures and sells custom storm windows for enclosed porches. Windsor
also provides installation service for the windows. The installation process does not involve
changes 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 chooses 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
the 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 cost of P1,700) upon delivery
and the remaining balance upon installation of the windows. The windows are delivered on
August 1, 20x5, Windsor completes installation on September 15, 20x5, and the customer pays
the balance due. (Round amounts to nearest peso).
26. How many performance obligations exist in this contract on June 1, 20x5?
a.0 c.2
b.1 d.3
Answer: (a) – on June 1, 20x5 . No entry required since neither party has performed under the
contract.
27. How many performance obligations exist in this contract on August 1, 20x5?
a. 0 c. 2
b.1 d.3
Answer: (c) - On August 1, 20x5, Windsor has two performance obligations: (1) the delivery of
the windows and (2) the installation of the windows.

Items 28 to 29 are based on the following information:

Sanjeev 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. Sanjeev concludes that
this contract qualifies for revenue recognition over time.

28. Assume Sanjeev estimates variable consideration as the most likely amount. What is the
amount of revenue Sanjeev would recognize for the first month of the contract?
a.P1,000 c.P1,400
b.P1,333 d.P1,200

Answer: (b) - The most likely outcome is that Sanjeev receives the P2,000 bonus (likelihood =
60%), in which case Sanjeev would be paid a total of (P1,000 × 6 months) + P2,000, or P8,000.
Therefore, Sanjeev would recognize P8,000 ÷ 6 = P1,333 each month.
29. Assume Sanjeev estimates variable consideration as the expected value. What is the amount
of revenue Sanjeev would recognize for the first month of the contract?
a.P1,000 c.P1,400
b.P1,333 d.P1,200

Answer: (c) - The expected value of the transaction price is P8,400, computed as P1,000 × 6
months + (60% × P2,000) + (40% × P3,000). Therefore, Sanjeev would recognize P8,400 ÷ 6 =
P1,400 each month.
Items 30 to 31 are based on the following information:
Thomas Consultants provided Bran Construction with assistance in implementing various cost-
savings initiatives. Thomas’ contract specifies that it will receive a flat fee of P50,000 and an
additional P20,000 if Bran reaches a pre-specified target amount of cost savings. Thomas
estimates that there is a 20% chance that Bran will achieve the cost-savings target.

30. Assuming Thomas uses the most likely value as its estimate of variable consideration,
calculate the transaction price.
a.P20,000 c. P54,000
b.P50,000 d.P70,000
Answer: (b) - The most likely amount is the flat fee of P50,000, because there is a greater chance
of not qualifying for the bonus than of qualifying for the bonus, so that is the transaction price.

31 . Assuming Thomas uses the expected value as its estimate of variable consideration, calculate
the transaction price.
a.P20,000 c.P54,000
b. P50,000 d.P70,000

Answer: (c) The expected value would be calculated as follows:

Possible Amounts Probabilities Expected Amounts
P70,000 (P50,000 fixed fee + 20,000 bonus) × 20% = P14,000
P50,000 (P50,000 fixed fee + 0 bonus) × 80% = 40,000
Expected contract price at inception P54,000
Or, alternatively: P50,000 + (P20,000 × 20%) = P54,000