Castillo, Janella BSA-221B | GROUP 3

Catamio, Nicolette
Cataring, Kelsey Anne
Carbilledo, Bill
Canaveral, Khate

PROBLEM 4 - pg. 199

ANSWERS:

PFRS 15 Criteria Checklist

a. The contracting parties have approved the contract and are

committed to perform their respective obligations; (1) ✓

REASON/INDICATOR:
(2) Signing of an enforceable contract.

b. The entity can identify each party’s rights regarding the goods or services to
be transferred; (3) ✓

c. The entity can identify the payment terms for the goods or services to be
transferred; (4) ✓

REASON/INDICATOR:
(5) Paragraphs 1(a) to (c) of the contract

d. The contract has commercial substance;

REASON/INDICATOR 6) ✓
(7) The contract can affect ABC’s future cash flows.

e. The consideration in the contract is probable of collection.

8)✓
REASON/INDICATORS:
(9) The credit investigation give a favorable result.
(10) The contract requires a down payment and, in case of default, ABC
Co. is entitled to a significant portion of the amounts collected.

CONCLUSION: Does the contract qualify for accounting under PFRS 15? State your reason.
(11) Yes, because all of the criteria in 'Step 1' have been met.

STEP 2: Identify the performance obligations in the contract

Identify the performance obligation(s) in the contract.
(12) The contract promises to transfer ownership of the land to the buyer upon full
payment of the consideration.

(13) State whether the performance obligation(s) is/are satisfied over time or at a point in time.
A point in time.
STEP 3: Determine the transaction price
(14) Determine the transaction price. ₱1,000,000
(15) Identify whether the transaction price is fixed or variable. Fixed

STEP 4: Allocate the transaction price to the performance obligations

(16) How much is allocated to each of the performance obligations?
₱1,000,000 for the promise to transfer the land to the buyer.

JOURNAL ENTRIES:
(17) Provide the entry at contract inception.

DATE ACCOUNT TITLE DEBITS CREDITS

10/03/2015 Cash 300,000
Contract Liability 300,000
To record the receipt of
deposit.

(18) Assume that the next entry made by ABC Co. on the contract is on December 31,
2015. What would be this entry?

DATE ACCOUNT TITLE DEBITS CREDITS

12/31/2015 Cash 175,000
Contract Liability 175,000
To record the collection of
payments for 3 months.

PRESENTATION
How should the contract be presented in ABC Co.’s December 31, 2015 statement of
financial position?

ACCOUNT CHECKLIST AMOUNT

19) Contract Asset ✘ -
20) Contract Liability ✓ 475,000
21) Receivable ✘ -

(22) Assume that the January 31, 2016 check is dishonored and the contract is settled on
this date, in accordance with the terms of the contract. What is the journal entry?

DATE ACCOUNT TITLE DEBITS CREDITS

01/31/2016 Contract Liability 475,000
Cash 17,500
Revenue 475,500
to record revenue for the
non-refundable payments
Received.
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation
(23) Disregard the assumption in number (18). Assume that the consideration is fully paid and
the land is transferred to the buyer. Provide the compound journal entries
DATE ACCOUNT TITLE DEBITS CREDITS
09/30/2016 Cash 58,333.33
Contract Liability 941,666.67
Revenue 1,000,000
To record the
satisfaction of the obligation.
09/30/2016 Cost of sales 400,000
Inventory 400,000
To record the cost of
the land sold as expense.

PROFIT OR LOSS
Use the assumption in number (23). Determine the effects of the contract in ABC Co.’s 2015
and 2016 profit or loss, respectively. Disregard taxes and registration costs.

2015 2016
(24) (25)
Revenue 0 1,000,000
Expenses 0 (400,000)
Profit 0 600,000