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IFRS 15: REVENUE FROM CONTRACTS WITH CUSTOMERS

IFRS 15
1. Under IFRS 15, what is the recognition principle of revenue arising from contracts with customers?
a. The revenue shall be recognized by the entity when the contract price has already been
received and the period of refund has already expired
b. The revenue shall be recognized by the entity when it is probable that there will be inflow
of future economic benefits to the entity and the revenue can be measured reliably
c. The revenue shall be recognized by the entity at the time of perfection of the contract with
the customer
d. The revenue shall be recognized by the entity when or as the entity satisfies the performance
obligation by transferring the promised goods or services to the customer

2. According to IFRS 15, what is the accounting treatment of the transaction price when a contract with
a customer has multiple performance obligations?
a. The transaction price shall be recognized as revenue of the most important performance
obligation
b. The transaction price shall be allocated equally to the different performance obligations
c. The transaction price shall be recognized as revenue only at the end of completion of
all performance obligations
d. The transaction price shall be allocated to the different performance obligations by reference
to their relative standalone selling prices

3. Under PFRS 15, the good or service is considered distinct if

Statement 1: The customer can benefit from it, either on its own or together with other resource that are
readily available to the customer
Statement 2: The good or service is separately identifiable from other goods or services
a. Only Statement 1 is correct
b. Only Statement 2 is correct
c. Both statements are correct
d. Both statements are incorrect

4. Which of the following situations would not allow the performance obligations to be satisfied over
time?
a. The customer simultaneously receives and consumes the benefits provided by the performance
of the entity
b. The performance of the entity does not create an asset with alternative use to the entity and the
entity has an enforceable right to payment for performance completed to date
c. The performance of the entity creates or enhances an asset that the customer controls as the
asset is created or enhanced
d. The performance of the entity creates an asset with alternative use to the entity and the
entity may not be able to enforce the right to payment for performance completed to date

5. According to IFRS 15, in which of the following instances will the revenue from contracts with
customers be recognized at a point in time instead of over time?
a. When the customer simultaneously receives and consumes all of the benefits provided by
the entity as the entity performs
b. When the entity’s performance creates or enhances an asset that the customer controls as
the asset is created
c. When the entity’s performance does not create an asset with an alternative use to the entity
and the entity has an enforceable right to payment for performance completed to date
d. When the entity has transferred physical possession and legal title to the asset to the customer

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Long-Term Construction Contracts (LTCC)

1. It is a contract specifically negotiated for the construction of an asset or a combination of assets that are
closely interrelated or interdependent in terms of their design, technology and function or their
ultimate purpose or use.
a. Construction contract
b. Construction in progress
c. Progress billing
d. Negotiated contract

2. Contract revenue in construction contract comprises

a. The initial amount of revenue agreed in the contract
b. Variation in contract work, claim and incentive payment
c. Both a and b
d. Neither a nor b
3. In selecting an accounting method for a newly contracted long-term construction project, the
principal factor to be considered should be
a. The terms of payment in the contract
b. The degree to which a reliable estimate of the costs to complete and extent of progress
toward completion is practicable
c. The method commonly used by the contractor to account for other long-term construction
contracts
d. The inherent nature of the contractor's technical facilities used in construction

4. When work to be done and costs to be incurred on a long-term contract can be estimated reliably,
which of the following methods of revenue recognition is preferable?
a. Installment method c. Completed-contract method
b. Percentage of completion method d. None of these

5. Which statement is incorrect when the outcome of the construction contract cannot be estimated
reliably?
a. Contract revenue and contract cost shall be recognized by reference to the stage of completion
of the contract activity at the end of the reporting period
b. Revenue shall be recognized only to the extent of the contract costs incurred that is probable
and will be recoverable
c. Contract costs shall be recognized in the period which they are incurred
d. An expected loss on the construction contract shall be recognized as a provision immediately

6. Contract costs of a construction contract comprise all of the following, except

a. Costs that can directly relate to the specific contract
b. Costs that are attributable to contract activity in general and can be allocated in the contract
c. General administration costs for which reimbursement is not specified in the contract
d. Such other costs that are specifically chargeable to the customer under the terms of the contract

7. It is an entity’s right to consideration in exchange for goods and services that the entity has transferred
to a customer when that right is conditioned on something other than passage of time
a. Contract receivable
b. Construction in progress
c. Contract asset
d. Contract liability

8. It is an entity’s obligation to transfer goods or services to customer for which the entity received
consideration from the customer.
a. Progress billings
b. Advances from customers
c. Contract liability
d. Contract asset

9. Company X faced with an impending loss on a long-term construction project and has asked for advice
on how to book the impending loss. Assuming that the company employs the percentage of completion
method, when should the loss be taken up in the company’s books?
a. Immediately
b. Over the period of the project
c. Upon completion of the project
d. When progress billings exceed contract costs incurred

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10. On January 1, 2022, Company X was contracted to build an office building for Company Y for a total
contract price of P11,800,000. Estimated total contract costs are P10,400,000. Costs incurred to date
related to the project are as follows:

Cost of direct materials used P800,000

Cost of direct labor, including supervision of P200,000 600,000
Cost of indirect materials used 220,000
Cost incurred in obtaining the contract previously written off 280,000
Depreciation of equipment used on the project 480,000
Payroll of design and technical department
allocated to the contract 320,000
Insurance cost (1/3 for the project) 720,000
Costs of contracted research and development 420,000
Depreciation of idle equipment not used on a particular contract 240,000
Selling costs 180,000
General and administrative expenses specifically
included under the term of the contract (chargeable to customer) 120,000
Borrowing cost incurred during the construction period 520,000
Advanced made to subcontractors 400,000
Using the cost-to-cost method, what is the realized gross profit to be recognized in 2022? a.
P538,440
b. P417,340
c. P500,769
d. P444,220

11. On January 1, 2021, Company X entered into a contract to construct a building for a customer. Company
X identified its performance obligation to be satisfied over time. The company uses the input method
based on costs to measure its progress on the contract. The contract price is P9,000,000. Information on
the construction is provided below:

2021 2022 2023

Contract costs incurred per year P2,760,000 P3,540,000 P500,000
Billings per year 50% 30% 20%
Collections on billings per year 90% 90% balance
Estimated costs to complete 4,140,000 700,000 -

Requirement: Compute for the revenue, cost of construction and gross profits in 2021, 2022 and 2023,
under:
a. Percentage of completion method
b. Zero profit method

12. In 2021, DC Builders started work on a P1,000,000 fixed price contract. Information on the construction
is shown below:
2021 2022 2023
Costs incurred to date P200,000 P825,000 P1,020,000
Estimated costs to complete 600,000 275,000 -
The contract was completed in 2023.
Requirement: Compute for the revenue, cost of construction and gross profits in 2021, 2022 and 2023,
under:
a. Percentage of completion method
b. Zero profit method

13. On April 1, 2022, Company X obtained a contract to construct a building. The building was estimated to
be built at a total cost of P17,500,000, but that amount will be reduced depending on when
construction of building is completed and is scheduled for completion on October 2024. The contract
contains a penalty clause to the effect that the other party was to deduct P35,000 from the contract
price for each week of delay.

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On December 31, 2022 and 2023, Company X cannot predict the variable consideration regarding the
completion of the project on time because of the different outcomes possible based on the company’s
construction schedule and its experiences with past projects.

On year 2024, due to bad weather conditions, the company does not expect that it can finish the
building on time. The completion of the project was delayed for 5 weeks. Below are the following data
pertaining to the construction periods.
2022 2023 2024
Cost incurred P1,750,000 6,440,000 1,085,000
Estimated cost to complete 7,000,000 910,000
Progress billings 1,400,000 15,225,000 4,200,000

Question 1: Using the percentage of completion method, what is the realized gross profit (loss) in 2023?
a. P8,260,000
b. P8,400,000
c. P11,725,000
d. P10,150,000

Question 2: Using the percentage of completion method, what is the realized gross profit (loss) in 2024?
a. (P35,000)
b. (P122,500)
c. P822,500
d. P840,000

14. On January 1, 2021, a contractor enters into a construction contract which includes a fixed contract
price of P144,000,000 to build a bridge. The contract has a December 31 year-end.
On December 31, 2021, the contractor’s estimate of the total contract cost is still P96,000,000.
However, by the end of 2022, the contractor’s estimate of contract cost increased to P120,000,000,
excluding the variation below. In 2022, the customer and the contractor agreed to a variation resulting
in an increase in contract revenue of P2,400,000 and estimated additional contract costs of P1,800,000.
Actual cumulative costs incurred to the end of 2021, 2022 and 2023 (the end of the contract) including
the costs of the variation are P36,000,000, P85,260,000 and P120,600,000, respectively.
The contractor determines the stage of completion of the contract costs incurred for a work performed
to date bear to the latest estimated total contract costs.
Determine the profit (loss) for each year
2021 2022 2023
a. P18,000,000 (P780,000) P8,580,000
b. P18,000,000 P17,220,000 P25,800,000
c. P18,900,000 (P1,680,000) P8,580,000
d. P18,000,000 (P2,460,000) P10,260,000

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Franchise

1. Under PFRS 15, how shall revenue from contracts with customers such as revenue from initial
franchise fee be recognized by the franchisor?
a. Upon receipt of the initial franchise fee by the franchisor
b. Upon signing of the franchise agreement
c. When the franchisor satisfies the performance obligation under the franchise agreement
d. Applying the legality over the substance of the transaction

2. The franchise revenue is satisfied over time when

a. The franchise fee is payable upon signing of contract
b. The performance obligations regarding the franchise rights are completed when the
franchise opens
c. Franchise rights are transferred at a point in time
d. The franchisor provides right to access rather than transferring the control

3. Which of the following indicator shows that the initial franchise fee shall be recognized as sales revenue
at a point in time instead over time?
a. When the franchisee simultaneously receives and consumes the benefits provided by the
franchisor’s performance as the franchisor performs
b. When the franchisor’s performance creates or enhances an asset that the franchisee controls
as the asset is created or enhanced
c. When the franchisor’s performance does not create an asset with alternative use to the
franchisor and the franchisor has an enforceable right to payment for performance completed to
date
d. When the franchisee has legal title to the franchise and has the significant risks and rewards of
ownership of the franchise

4. What is the measurement of franchise revenue recognized from franchise agreement?

a. Fair value of the consideration received or receivable
b. Book value of the consideration received or receivable
c. Carrying amount of the consideration received or receivable
d. Nominal amount of the consideration received or receivable

5. Under PFRS 15, when shall a franchisor recognize revenue from contingent franchise fee or revenue
for a sales-based royalty?
a. When the sales of the franchisee occurs
b. When the performance obligation to which some or all of the contingent franchise fees or
sales- based royalty has been satisfied or partially satisfied
c. When both A and B events occur
d. When either A or B event occurs

6. On January 1, 2021, Company X granted a franchisee the right to operate a restaurant in a specific
location using Company X’s trade name, concept and menu over a 10-year period. The franchise
agreement states an upfront fee of P1,200,000, which includes P200,000 for kitchen equipment that the
company will purchase for the franchisee, plus 10% royalty based on the franchisee’s sales. The
P200,000 amount reflects the stand-along selling price of the equipment.

Company X regularly undertakes activities such as marketing research, product development,

advertising, campaigns, and implementing operational efficiencies and pricing strategies to support the
franchise name.

Company X delivered the equipment on February 1, 2021. The restaurant opened on April 1, 2021, at
which date the license period starts to run. The franchisee reports sales of P9,000,000 for theyear.

Company X has determined that the license provides right to access the Intellectual Property.
Requirement: Provide the journal entries.

7. On January 1, 2021, Company X sells computer software to Mr. Y for a five year term. The agreement
provide that Mr. Y shall pay P2,000,000 upfront fee, P500,000 upon signing the contract and the balance
in two equal annual payments starting December 31, 2021. The present value factor at 8% is 1.78326 for
2 periods. The upfront fee paid by Mr. Y is for the following performance obligations:
 Training services with stand-alone selling price of P400,000.
 Equipment with stand-alone selling price of P1,000,000.
 Computer software with stand-alone selling price of P600,000.

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Mr. Y commenced its business operations on October 1, 2021. The entity determined that the
performance obligations are distinct.
Question 1: Assume that Mr. Y has the right to use the intellectual property, the journal entry on January
1, 2021 would include
a. A debit of Notes receivable of P2,000,000
b. A credit of Unearned Service Revenue of P367,489
c. A credit of Sales Revenue – Equipment of P1,000,000
d. A credit of Unearned Franchise Revenue – Software of P918,772.50

Question 2: Assume that Mr. Y has the right to use the intellectual property, the journal entry on October
1, 2021 would include
a. Debit to Cash of P500,000
b. Debit to Franchise Revenue – Software of P551,233.50
c. Credit to Unearned Interest Income of P162,555
d. Credit to Sales Revenue – Equipment of P918,722.50

Question 3: Assume that Mr. Y has the right to use the intellectual property, on December 31, 2021, how
much is the total revenue from license contract?
a. P0
b. P1,286,211.50
c. P1,837,445
d. P2,000,000

Question 4: Assume that Mr. Y has the right to access the intellectual property, the journal entry on
October 1, 2021, would include
a. Debit to Unearned Franchise Revenue – Tradename of P27,562
b. Credit Service Revenue – Training of P367,489
c. Debit to Sales Revenue – Equipment of P918,722.50
d. Credit Notes Receivable of P1,500,000

Question 5: Assume that Mr. Y has the right to access the intellectual property on December 31, 2021, how
much is the total revenue from license contract?
a. P1,286,211.50
b. P1,313,773.18
c. P1,396,458.20
d. P1,837,445

8. On January 1, 2022, an entity granted a franchise to a franchisee. The franchise agreement required the
franchisee to pay a nonrefundable upfront fee in the amount of P800,000 and ongoing payment of
royalties equivalent to 5% of the sales of the franchisee. The franchisee paid the nonrefundable upfront
fee on January 1, 2022.

In relation to the nonrefundable upfront fee, the franchise agreement required the entity to render the
following performance obligations:
 Training services with stand-alone selling price of P400,000.
 To deliver 20,000 units of raw materials to the franchisee with stand-alone selling price of
P500,000.
 To allow the franchisee to use the entity’s tradename for a period of 10 years starting January
1, 2022 with stand-alone selling price of P100,000. The entity has determined that the license
provides right to access the Intellectual Property.
On January 31, 2022, the entity completed the training services. On December 31, 2022, the entity was
able to deliver 6,000 units of raw materials to the franchisee. For the year ended December 31, 2022,
the franchisee reported sales revenue amounting to P200,000. The entity had determined that the
performance obligations are separate and distinct from one another.

Question 1: What is the amount of the nonrefundable upfront fee to be allocated to the training services?
a. P240,000
b. P320,000
c. P400,000
d. P500,000

Question 2: What is the amount of revenue to be recognized in relation to the use of delivery of raw
materials for the year ended December 31, 2022?
a. P120,000

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b. P150,000
c. P200,000
d. P400,000

Question 3: What is the amount of revenue to be recognized in relation to the use of entity’s tradename
for the year ended December 31, 2022?
a. P8,000
b. P10,000
c. P20,000
d. P100,000

Question 4: Assume the customer has right to use the intellectual property, what is the amount of total
revenue from franchise contract to be recognized on December 31, 2022?
a. P448,000
b. P458,000
c. P520,000
d. P530,000

9. On January 1, 2021, Company X signed an agreement to grant a license over a patented technology to
Company Y for an initial contract fee of P500,000 for 4 years. Of this amount, P100,000 was paid when
the agreement was signed and the balance payable in four annual payments beginning on December 31,
2021. Company X signed a non-interest bearing note for the balance. Company X’s rating indicates that
he can borrow money at 16% for the loan of this type. Assume that substantial services amounting to
P150,000 had already been rendered by Company X and that additional indirect cost of P12,000 was also
incurred. PV factor is 2.80.

On January 15, 2021, the license is transferred to Company Y. The license agreement provides that
Company Y has the right to use the entity’s intellectual property as it exists at the point in time at which
the license is granted.

Question 1: The net income to be reported on December 31, 2021 is

a. P218,000
b. P230,000
c. P262,800
d. P274,800

Question 2: Assuming the license provides Company Y the right to access the entity’s intellectual property
as it exists throughout the license period. The net income to be reported on December 31, 2021 is
a. (P22,200)
b. P45,500
c. P90,300
d. P262,800

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Consignment Sales

1. A shipment of inventory by the manufacturer or wholesaler to a dealer to be sold by him on a

commission basis on the risk and account of the manufacturer or wholesaler is called
a. Arrangement
b. Contract
c. Agreement
d. Consignment

2. The person who sends the goods to the agent to be sold by him on commission is known as
a. Consignor
b. Consignee
c. Buyer
d. Seller

3. The person to whom goods are sent for sale on commission is

a. Merchant
b. Wholesaler
c. Retailer
d. Consignee

4. The consignee is the

a. Principal
b. Agent
c. Buyer
d. Seller

5. The risk of stock on consignment lies with

a. Consignee
b. Consignor
c. Buyer
d. Seller

6. In the books of the consignor, the balance of the consigned goods inventory account would be shown
a. As an asset in the Statement of Financial Position of the consignee
b. As liability in the Statement of Financial Position of the consignee
c. As an asset in the Statement of Financial Position of the consignor
d. As liability in the Statement of Financial Position of the consignor

7. The sales revenue and cost of goods sold should be recognized by the consignor
a. When the cash is received from the consignee
b. When the goods are shipped to the consignee
c. When the goods are shipped by the consignee to the third party (customer)
d. When the consignor receives the notification from consignee that the merchandise have
been sold to a third party (customer)

8. ABC Corporation consigned ten (10) bags to XYZ Inc. These bags had a cost of P10,800 each. Freight on
the shipments amounting to P7,200 was paid by ABC Corp.

XYZ submitted an accounting of sales stating that it has sold six (6) bags and remitted cash amounting to
P81,900 to ABC Corp. after deducting the following:

Commission, 15% of sales ?

Selling expenses 5,400
Delivery and installation of items sold 3,600
Cartage cost upon receipt of consigned goods 900

Compute the following:

Question 1: The total consignment sales a. P64,800
b. P69,120
c. P91,800
d. P108,000

Question 2: The commission earned on the sale of the six (6) bags by XYZ Inc. a. P9,720
b. P10,800
c. P15,000
d. P16,200

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Question 3: The consignor net profit a. P13,140

b. P17,100
c. P19,800
d. P36,000

Question 4: The cost of inventory on consignment to be reported by ABC Corporation at the end of the
period a. P43,200
b. P46,080
c. P46,440
d. P66,600

9. Company X consigned 25 shirts to Company Y. The cost of the shirt is P310 each. Company X paid the
freight cost amounting to P500. The shirt is to be sold at P500 each payable P100 in the month of
purchase and P20 per month thereafter. Company Y’s commission on consigned goods is 20%.

Company Y was able to sell 15 shirts in July and 5 shirts in August. The regular monthly collections by
Company Y and the appropriate cash remittances have been made to Company X at the end of each
month. The parties agreed that Company Y is allowed only to deduct a commission based on the
amount collected from consignment.

Question 1: The cost of inventory on consignment in the hands of Company Y a. P1,550

b. P1,650
c. P1,750
d. P2,450

Question 2: Company X’s net profit a. P1,400

b. P1,500
c. P2,000
d. P2,940

Question 3:
Total remittance by Company Y
a. P460
b. P1,650
c. P1,840
d. P2,000

10. Company X consigned 12 cabinets, which costs P960 each, to Company Y, which was to sell it for a
15% commission based on selling price.

Company X paid freight cost amounting to P240 and reimbursed Company Y P250 for its delivery to
customers. On August 30, 2020, Company Y reported that it had sold 8 cabinets, 6 for cash at P1,800
and 2 for credit basis at P2,160 of which it had collected 20% as down payment.

Question 1: The cost of inventory in the hands of Company

Y a. P3,840
b. P3,920
c. P4,003
d. P4,080

Question 2: The net profit of Company X on consignment sales

a. P4,006
b. P4,682
c. P4,762
d. P4,845

Question 3: The amount remitted by Company Y to Company

X a. P9,146
b. P9,229
c. P9,396
d. P11,664

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Installment Sales

1. An acceptable method for recognizing profit when the collection of cash is in doubt is the
a. Percentage of completion method
b. Zero-profit method
c. Installment method
d. Consignment method

2. Under the Installment method, the gross profit rate based on sale may be computed as
a. Sales divided by the gross profit
b. Gross profit divided by the cost of sales
c. Deferred gross profit divided by the Installment Accounts Receivable
d. All of the above

3. The excess of fair value of traded-in merchandise over the trade-in value in an installment sale is known as
a. Over allowance
b. Under allowance
c. Net realizable value
d. Realized gross profit

4. Income is recognized using the Installment Method of accounting generally equals cash collected
multiplied by the
a. Net operating percentage
b. Gross profit percentage
c. Net operating percentage adjusted for expected uncollectible accounts
d. Gross profit percentage adjusted for expected uncollectible accounts

5. In installment sales, how shall the seller classify and present deferred gross profit account on its
Statement of Financial Position?
a. Equity account
b. Income account
c. Unearned revenue account
d. Asset valuation allowance or contra-receivable account

6. ABC Company accounts for its sales on the installment sales basis. At the beginning of 2022, the
ledger accounts include the following account balances:

Installment accounts receivable, 2020 P180,000

Installment accounts receivable, 2021 576,000
Deferred gross profit, 2020 75,600
Deferred gross profit, 2021 216,000

At the end of 2022, account balances before adjustment for unrealized gross profit on installment sales are:

Installment accounts receivable, 2020 P0

Installment accounts receivable, 2021 144,000
Installment accounts receivable, 2022 780,000
Deferred gross profit, 2020 75,600
Deferred gross profit, 2021 206,100
Deferred gross profit, 2022 360,000

Installment sales in 2022 are made at 25% above cost of merchandise sold; cash sales amounting to
P1,400,000 were made at mark-up of 30% of sales and credit sales of P400,000 at a mark-up of 32%.

During 2022, upon default in payment by the customer, the company repossessed the merchandise with
a net realizable value (fair market value) of P12,000. The sale was made in 2021 for P64,800 and
P38,400 had been collected prior to repossession.

Question 1: Total realized gross profit before gain or loss on repossession in 2022 a. P204,000
b. P227,700
c. P431,700
d. P979,700

Question 2: Realized gross profit in installment sales in 2022 a. P204,000

b. P227,850
c. P431,700
d. P979,700

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Question 3: The realized gross profit on installment sales in 2022 for 2021 sales a. P75,600
b. P152,100
c. P204,000
d. P267,700

Question 4: The gain or loss on repossession is

a. P4,500 loss
b. P4,500 gain
c. P14,400 loss
d. P14,400 gain

Question 5: Assuming that ABC wants to improve the salability of the repossessed merchandise, the
company incurred P1,000 for reconditioning. After which, the company was able to sell the merchandise
to another customer for P16,250 at a downpayment of 40%. Compute the realized gross profit on the
subsequent sale.
a. P1,040
b. P1,300
c. P1,624
d. P1,700

7. Company X sells home theater set both on installment and cash basis. Mr. Y purchased a set
from Company X on March 30, 2021, for P367,500 which has a cost of P289,800.

A used set is accepted as down payment, P89,600 being allowed on the trade in. The used set can be
resold for P112,140 after reconditioning cost of P5,362. The company expects to make a 20% gross
profit on the sale of used set. The balance of the sale is to be paid on a 10-month installment basis
starting May 1, 2021.

Mr. Y defaulted payment starting November 1, 2021, and the set was immediately repossessed. The
repossessed merchandise was appraised at a fair market value of P65,625 at the time of repossession.

Company X had to incur additional cost of repairs amounting to P6,475 before the car was subsequently
resold on December 1, 2021, for P90,125 cash to Mr. W.

Compute for the net income to be recognized for the year 2021.
a. P44,940
b. P51,415
c. P68,243
d. P69,293

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