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Problem 1.

On July 1, 2013, Torela Company, a construction company, entered


into a contract to construct a commercial building for a customer-owned land for
promised consideration of P1,000,000 and a bonus of P200,000 if the building is
completed within 24 months. An inception date, the entity expects total
construction costs of P700,000 to complete the building. The entity accounts for
the promised bundle of goods and services as a single performance obligation
satisfied over time in accordance with paragraph IFRS 15 because the customer
controls the building during construction. At contract inception, the entity cannot
conclude that it is highly probable that a significant reversal in the amount
cumulative revenue recognized will not occur with respect to inclusion of bonus to
contract price. Completion of the building is highly susceptible to factors outside
the entities influence, including weather and regulatory approvals. In addition, the
entity has limited experience with similar types of contracts. The entity
determines that the input measure, on the basis of cost incurred, provides an
appropriate measure of progress towards complete satisfaction of the
performance obligation. As of December 31, 2031, the construction costs incurred
to date by Tolera Company is P420,000.

In the first quarter of 2032, the parties to the contract agree to modify the
contract by changing the floor plan of the building. As a result, the fixed
consideration and expected costs increased by P150,00 and P120,000
respectively. In addition, the allowable time in achieving the P200,000 bonus is
extended by 6 months to 30 months from the original contract inception date. At
the date of modification, on the basis of its experience and the remaining work to
be performed, which is primarily inside the building and not subject to weather
conditions, the entity conclude that it is highly probable that including the bonus
in the transaction price will not result in a significant reversal in the amount of
cumulative revenue recognized. Despite the changes, the contractor evaluates
that the remaining goods and services to be provided using the modified contract
are not distinct from the goods and services transferred on or before the date of
contract modification; that is, the contract remains a single performance
obligation. For the year ended December 31, 2032, Torela Company incurred
construction costs of P195,000.

Under IFRS 15, what is the balance of (1) Construction in Progress as of


December 31, 2032 and (2) realized gross profit to be recognized by
Torela Company for the year ended December 31, 2032, respectively?
a. P1,012,500 and P97,500
b. P862,500 and 67,500
c. P1,012,500 and P217,500
d. P1,080,000 and P127,500

Problem 2. Mcjobee operates and franchise restaurants around the world. On


January 1, 2016, Macjobee entered into a franchise agreement with a franchisee.
As part of its franchise agreement, Mcjobee requires the franchisee to pay a non-
refundable upfront franchise fee of P95,000 upon opening a restaurant and
ongoing payment of royalties, based on 10% of franchisees sales. As part of the
franchise agreement, Mcjobee provides pre-opening services, including supply
and installation of cooking equipment and cash registers, valued at P30,000,
which is the stand-alone selling price of the pre-opening services. In addition, the
franchise agreement includes a license of Intellectual Property such as Mcjobees
trademark and trade name to the franchisee.Mcjobee has determined that the
license provides a right access to Intellectual Property over time. Mcjobee has
determined the stand-alone selling price of the license is P70,000. The franchise
agreement has term of 10 years. On January 1, 2016, the franchisee paid the non-
refundable upfront franchise fee of P95,000 to Mcjobee.
Mcjobee evaluates the arrangements and determines it meets the criteria to be
accounted for a contract with a customer under IFRS 15. Mcjobee determines its
pre-opening services and license of Intellectual Property are each distinct and,
therefore, need to be accounted for as separate performance obligations. As of
December 31, 2016, Mcjobee already satisfied its performance obligation to
supply and install cooking equipment and cash registers to the franchisee. For the
year ended December 31, 2016, the franchisee reported sales revenue of
P100,000.

Under IFRS 15, how much total revenue shall be recognized by Mcjobee
for the year ended December 31, 2016?
a. P95,000
b. P28,500
c. P6,650
d. P45,150

Problem 3. On January 1, 2017, Matibay Development Corporation (MDC)


entered into a contract with Company B to construct a new corporate
headquarters on land owned by Company B. Contractor MDC determines that
control of the building is passed to Company B as it is constructed. Therefore, the
performance obligation is satisfied over time. The contract price is P5,000,000,
but that amount will be reduced or increased depending on when construction of
the building is completed. For each day before December 31, 2019, that the
building is completed, the promised consideration will increase by P25,000. For
each day after December 31,2019 that the building is incomplete, the promised
consideration will be reduced by P25,000. The parties have also agreed that when
the building is complete, it will be inspected and assigned a green building
certification level. If the building achieves the certification level specified in the
contract, Contractor MDC will be entitled to an incentive bonus of P200,000.

On December 31, 2017, MDC determined that expected value better predicts
the variable consideration it will receive regarding the early completion or delay of
the construction because of the different outcomes possible based on MDCs
current construction schedule and its experience in past projects. MDC estimate
that it is 50% likely to complete the project 10 days ahead of schedule and
receive an incentive of P250,000, 25% likely to complete the project on time and
receive no incentive and 25% likely to complete the project five days past
schedule and incur a P125,000 penalty.

As of the same date, on the other hand, MDC determined that the most likely
amount is the better predictor to estimate the variable consideration associated
with the green building certification bonus because there are only two possible
outcomes (P200,000 or P0). Based on its history of completing building projects
that achieve the green building certification level specified in the contract and the
absence of factors that may indicate the criteria will not be met, MDC decided to
include the bonus in the construction price.

On December 31, 2018, MDC did not change its estimate with respect to green
building certification bonus but after the evaluation evaluating construction
completed to date and the remaining project schedule, Contractor MDC
determines it is now 75% likely to complete the project 10 days ahead of schedule
and receive an incentive of P250,000 and 25% likely to complete the project on
time and receive no incentive bonus.

The following construction costs were provided by MDC for the years ended
December 31,2017 and 2018:
December 31, 2017 December 31, 2018
Costs incurred during the P2,400,000 P750,000
year
Estimated costs to P1,600,000 P1,350,000
complete at the end of
the year

Under IFRS 15, Assuming the outcome of construction can be estimated


reliably, what is the realized gross profit/(gross loss) to be recognized by
MDC for the year ended December 31, 2018?
a. (P230,000)
b. (P220,625)
c. (P250,000)
d. (P155,000)