1.

Program of the Philippine government guided by the principles of transparency, accountability

and sustained partnerships with the private sector:
a. Conditional cash transfer program
b. feeding program
c. Housing program
d. Public-private partnership program (service concession arrangement)
2. The program intends to provide the public with adequate, safe, efficient, reliable and
reasonably-priced infrastructure and development facilities while affording the private sector a
level playing field, reasonable returns and appropriate sharing of risk
a. Conditional cash transfer program
b. Feeding program
c. Housing program
d. Public-private partnership program (service concession arrangement)
3. The arrangement is governed by a contract between the operator and the government (the
grantor) that sets out performance standards, mechanisms for adjusting prices or rates and
arrangement for arbitrating disputes. Such arrangements are often described as:
a. “Build-operate-transfer” (BOT) arrangement, a “rehabilitate-operate-transfer” (ROT) or
“public-to-private” service concession arrangement
b. Conditional cash transfer program
c. Feeding program
d. Housing program
4. The PFRIC 12 applies only if:
a. The grantor controls or regulates what services the operator must provide with the
infrastructure, to whom it must provide them, and at what price; and
b. The grantor controls – through ownership, beneficial entitlement or otherwise – any
significant residual interest in the infrastructure at the end of the term of the arrangement
c. Both A and B
d. None of the above
5. This Interpretation provides the accounting principles for recognizing and measuring the
obligations and related rights in service concession arrangements. The issues addressed are;
i. Treatment if the operator’s right over the infrastructure
ii. Recognition and measurement of arrangement consideration
iii. Construction or upgrade services
a. I and II only
b. II and III only
c. I and III only
d. I, II and III
49)

This interpretation provides the accounting principles for recognizing and measuring the obligations and
related rights in service concession assignments.

I borrowing II borrowing III subsequent accounting

I,II and III

50)

Which of the following statements is false?

I PFRIC 12 specifies that the infrastructure be recognized as property

II The operator has access to operate the infrastructure to provide the public service

III Under terms of the contractual arrangement, the operator acts as a service provider by constructing
or upgrading the infrastructure

I only

51)

The operator of the BOT arrangement shall recognize and measure revenue in accordance with:

D. PFRS 15

52)

In construction or upgrade services, the operator shall account for revenue and costs relating to
construction or upgrade services in accordance with PFRS 15, generally using the:

a. Stage of completion method

53)

For providing the construction or upgrade services, the consideration received or receivable by the
operator shall be recognized at its fair value. The consideration may be rights to:

a. A financial asset or an intangible asset

54)

To the extent that it has an unconditional contractual right to receive cash or another asset from, or at
the direction of, the grantor for the grantor for the construction services. The operator recognized it as

a. A financial asset

55)

To the extent that is receives a right (a license) to charge users of the public service. A right to charge of
the public service is not an unconditional right to receive cash because the amounts are contingent on
the extent that the public uses the service. The operator recognizes it is
b. An intangible asset

56)

The operator has an unconditional right to receive cash if the grantor contractually guarantees to pay
the operator based on:

a. Specified or determinable amounts or the shortfall, if any, between amounts received from users of
the public services and specified or determinable amount

57)

The operator shall account for revenue and costs relating to operation services in accordance with:

d. PFRS 15

58)

The terms of the contractual arrangement may require the operator:

a. To maintain the infrastructure to a specified level of serviceability

b. To restore the infrastructure to a specified condition before it is handed over to the grantor at the
end of the service arrangement.

A or B

59)

In accordance with PAS 23, borrowing costs attribute to the arrangement in the period in which they are
incurred shall be:

b. Expense

60)

In accordance with PAS 23, borrowing costs attribute during the construction phase of the arrangement
shall be capitalized as a component of:

a. Intangible asset

25. It is an arrangement whereby a government or other public sector body contracts with a private
operator to develop or upgrade, operate and maintain the grantor’s infrastructure assets such as
roads, bridges, tunnels, airport, etc.

a. Service concession
b. Government grant
c. Government assistance
d. Loan

26. According to PFRIC 12. Service Concession Arrangement, the infrastructure asset shall be
recognized by the operator as:

a. Property, plant and equipment

 b. Financial asset
c. Intangible asset
d. Either financial asset or intangible asset

27. It is a type of service concession arrangement whereby the operator receives a right to charge for
use of a public sector that it constructs or upgrades and then must operate and maintain for a
specified of time:

a. Property, plant and equipment

b. Financial asset
c. Intangible asset
d. Either financial asset or intangible asset

28. Under a financial asset model of Service Concession Arrangement, the operator has as
unconditional night to receive cash if the grantor contractually guarantees to pay the operator:

a. Specified or determinable amounts.

b. The shortfall between amounts received from users of the public service and specified or
determinable amounts.
c. Either specific/determinable amounts or the shortfall between amounts received from users of
public service and specified/determinable amounts.
d. Neither specific/determinable amounts nor the shortfall between amounts received from users
of public service and specified/determinable amounts.

29. A feature of service concession arrangement is the public service nature of the obligation
undertaken by the operator. Which of the following is one of the other common features under PFRIC
12, Service Concession Arrangement?

a. The grantor sets the initial prices to be levied by the grantor and regulates price revisions over
the period of the service arrangement.
b. The party that grants the service concession arrangement is a public sector, like government
body.
c. The party that grants the service concession arrangement is a public sector or a private sector
entity to which the responsibility for the service has been devolved.
d. The grantor is responsible for at least some of the management of the infrastructure and related
services.

30. In some cases, the grantor may provide other items to the service concession operator. If such
assets form part of the consideration payable by the grantor for the services, these assets are
recognized as:

a. Government assistance
b. Government grants
c. Government loan
d. Assets of the operator measured at fair value on Initial recognition
PROBLEM 1: True or False
1. Under a BOT a BOT arrangement that is within the scope of IFRIC 12, the grantor is a private
entity - FALSE
2. Under a BOT arrangement that is within the scope of IFRIC 12, the operator acts as a service
provider - TRUE
3. If, in exchange for the operators’ services, the grantor in a service concession arrangement pays
the operator a specified amount and grants the operator a right to charge users of public services,
the operator receives consideration in the form of a financial asset - FALSE
4. An operator under a service concession arrangement accounts for revenue from construction or
upgrade services in accordance with PFRS 9 Financial instruments or PAS 38 Intangible Assets
or both, depending on the nature of the consideration - FALSE
5. An operator under a service concession arrangement accounts for revenue from operation
services in accordance with PFRS 15 Revenue from contracts with customers - TRUE
6. During the construction Period in BOT contract, the entity shall account for an intangible asset
arising from the contract in accordance with PFRS 15 - TRUE
7. According to PFRS 15, if the consideration in the contract is a non-cash consideration, the non-
cash consideration is measured at fair value - TRUE
8. If the operator under a BOT contract has a contractual right to receive an intangible asset, the
operator may capitalize borrowing cost during the construction phase subject to the provisions of
PAS 23 - TRUE
9. If the operator under a BOT contract has a contractual right to receive cash or other financial
asset, the operator may capitalize borrowing cost during the construction phase subject to the
provisions of PAS 23 - FALSE
10. The operator shall recognize the infrastructure covered under a service concession arrangement
as property, plant and equipment until the infrastructure is handed over to the grantor - FALSE

Problem 2: For Classroom Discussion

1. Under a BOT arrangement that is within the scope of IFRIC 12, the operator (choose the incorrect
statement)
a. Is a private entity
b. Receives a right and incurs an obligation to provide public services
c. Acts as a service provider
d. Is a public sector entity
2. Which of the following contracts is within the scope of IFRIC 12 Service concession
arrangements?
a. ABC CO., a private entity, wins a government bid to provide computer equipment to be used
in the upcoming elections
b. DEF Co., a private entity, wins a government bid to operate a canteen in a government
agency office
c. XYZ, Inc., a private entity, wins a government bid to provide internet access to all government
offices and cellular phones and plans to all government employees
d. CHU CO., a private entity, wins a government bid to construct, operate and maintain for 25
years an expressway. At the end of the contract, GHI Co. shall handover the express way to
the government
3. How should the operator in a BOT contract subsequently measure the consideration from the
contract that is in the form of a financial asset?
a. At amortized cost
b. At fair value through other comprehensive income
c. At fair value through profit or loss
 d. Any of these
4. An operator under a service concession arrangement may capitalize borrowing cost during the
construction phase of the contract in accordance with PAS 23 if
A. The consideration in the contract is in the form of a financial asset
B. The consideration in the contract is in the form of an intangible asset
C. A or b?
D. Neither A nor B

Use the following information for the next three questions:

Lucky Co., a private contractor, wins a bid to construct an expressway for the government. The terms of
the arrangement are as follows:
a. Lucky Co. shall construct the expressway within 2 years and operate and maintain the
expressway for 8 years following the completion of the construction.
b. In exchange for Lucky Co.'s services, the government promises to pay Lucky Co. P20M per year
in Years 3 to 10.
c. The government reserves its rights to collect tolls from users of the expressway in Years 3 to 10.
d. At the end of the 10th year, Lucky Co. shall transfer the expressway to the government.
At contract inception, Lucky Co. identifies two performance obligations in the contract - construction
services and operation services. Lucky Co. estimates the stand-alone selling prices of these services as
follows:
a. Construction services: Construction costs + 20%
b. Operation services: Operation costs + 5%
Lucky Co. estimates the following costs:
a. Construction services: P15M per year during the 2-year construction period
b. Operation services: P5M per year in Years 3 to 10

5. What is the form of the consideration in the agreement?

a. financial asset
b. intangible asset
c. partly a and partly b
d. none of these
6. How much revenue from services is recognized in Year 1?
a. 0
b. 15M
c. 18M
d. 20M

Solution: (15M construction costs x 120%) = 18M

7. How much revenue from services is recognized in Year 4?

a. 0
b. 5M
c. 5.25M
d. 20M

Solution: (5M operation costs x 105%) = 5.25M 

Use the following information for the next five questions:

Fortunate Co., a private contractor, wins a bid to construct a railway for the government. The terms of the
arrangement are as follows:
a. Fortunate Co. (operator) shall construct the railway within 2 years and operate and maintain the
expressway for 8 years following the completion of the construction.
b. In exchange for the services, the government grants Fortunate Co. the right to collect fees from
railroad users in Years 3 to 10.
c. At the end of the 10th year, the operator shall transfer the railway to the government.

At contract inception, the operator identifies a single performance obligation for the construction services.
The operator estimates that the stand-alone selling price of the construction services is equal to the
forecast construction costs plus 20%

The operator estimates the following costs:

a. Construction services: P15M per year during the 2-year construction period
b. Operation services: P5M per year in Years 3 to 10

The operator forecasts that the number of railway users will remain constant over the duration of the
contract and that it will receive railway fees of P20M in each of Years 3 to 10.

8. What is the form of the consideration in the agreement?

a. financial asset
b. intangible asset
c. partly a and partly b
d. none of these
9. Identify the nature and measurement of the consideration in accordance with PFRS 15.
Nature Measurement
a. Cash Cash selling price
b. Cash Stand-alone selling price
c. Non-cash Cash selling price
d. Non-cash Fair value
10. How much revenue from services is recognized in Year 1?
a. 0
b. 15M
c. 18M
d. 20M
Solution: (15M construction costs x 120%) = 18M 
11. How much revenue from services is recognized in Year 4?
a. 0
b. 5M
c. 5.25M
d. 20M
Solution: 20M, the fees collected from railway users
12. What is the carrying amount of the asset recognized from the arrangement at the end of Year 3?
(Assume a discount rate of 8%; round-off answer to 2 decimal places)
a. 22.82
b. 30.37
 c. 31.50
d. 34.33

PROBLEM 3: Exercises

Use the following information for the next three questions:

Happy Co., a private contractor, wins a bid to construct an airport for the government. The terms of the
arrangement are as follows:
a. Happy Co. (operator) shall construct the airport within 2 years and operate and maintain the
airport for 8 years following the completion of the construction.
b. In exchange for the operator's services, the government promises to pay Happy Co. P300M per
year in Years 3 to 10.
c. At the end of the 10th year, the operator shall transfer the airport to the government.

At contract inception, the operator identifies two performance obligations in the contract - construction
services and operation services. The operator estimates the stand-alone selling prices of these services
as follows:
a. Construction services: Construction cost +30%
b. Operation services: Operation costs + 10%

The operator makes the following estimates of costs:

a. Construction services: P400M per year during the 2-year construction period
b. Operation services: P10M per year in Years 3 to 10
The imputed interest rate in the contract is 19.10%.

1. What is the form of the consideration in the agreement?

a. financial asset
b. intangible asset
c. partly a and partly b
d. none of these
2. What is the carrying amount of the asset recognized on the contract at the end of Year 3?
a. 983
b. 1,068
c. 1,139
d. 0
3. How much profit is recognized in Year 2?
a. 520
b. 369
c. 219
d. 189
4. How much profit is recognized in Year 3?
a. 520
b. 369
c. 219
d. 189
Use the following information for the next five questions:

Fortunato Co., a private contractor, wins a bid to construct a car park for the government. The terms of
the arrangement are as follows:
a. Fortunato Co. (operator) shall construct the railway within 2 years and operate and maintain
the expressway for 8 years following the completion of the construction.
b. In exchange for the services, the government grants the operator the right to collect fees from
car park users in years 3 to 10.
c. At the end of the 10th year the operator shall transfer the railway to the government.
At contract inception, the operator identifies a single performance obligation for the construction services.
The operator estimates that the stand-alone selling price of the constructions services is equal to the
forecast construction costs plus 30%.
The operator makes the following estimates of costs:
a. Construction services: P400M per year during the 2-year construction period
b. Operation services: P10M per year in year 3 to 10
The operator forecast that the number of car park users will remain constant over the duration of the
contract and that it will receive car park fees of P300M in each of year 3 to 10
At the commencement of the construction services in year 1, the operator obtains a 5-year, 10%, 100M
bank loan to help finance the contract costs. The principal in the loan matures in lump sum but interests
are due annually every end of the year.
5. What is the form of the consideration in the agreement?
a. Financial asset
b. Intangible asset
c. Partly a and partly b
d. None of these
6. Identify the nature and measurement of the consideration in accordance with PFRS 15.
Nature Measurement
a. Cash Cash selling price
b. Cash Stand-alone selling price
c. Non-cash Cash selling price
d. Non-cash Fair value
7. How should the entity account for the asset recognized on the contract?
During Construction Period After Construction Period
a. In accordance with PAS 38 In accordance with PFRS 15
b. In accordance with PFRS 9 In accordance with PFRS 15
c. In accordance with PFRS 15 In accordance with PFRS 15
d. In accordance with PFRS 15 In accordance with PAS 38
8. What is the carrying amount of the asset recognized on the contract at the end of Year 3?
a. 982.50
b. 927.50
c. 918.78
d. 910.00
9. How much profit (loss) is recognized in year 2?
a. 110
b. (12.50)
c. (32.50)
d. 120
10. How much profit is recognized in year 3?
a. 148
b. 158
c. 280
d. 138
PROBLEM 4: MULTIPLE CHOICE - THEORY

1. It is an arrangement whereby a government or other public sector body contracts with a private
operator to develop (or upgrade), operate and maintain the grantor's infrastructure assets such
as roads, bridges, tunnels, airports, energy distribution networks, prisons or hospitals.
a. Build-operate-transfer arrangement
b. Service concession arrangement
c. Private-public partnership (PPP)
d. All of these
2. BOT contracts in the Philippines are governed by Philippine BOT Law or
a. R.A. No. 9298
b. R.A. No. 7718
c. R.A. 8424
d. R.A. 7781
3. Under Philippine laws, the maximum fixed term over which an operator shall hand over an
infrastructure covered under a BOT contract to the government is
a. 10 years
b. 25 years
c. 50 years
d. None of these
4. Private public partnerships (PPP) in the Philippines may be made between a public sector entity
and a private corporation, provided that the corporation is registered with the SEC and
a. 100% owned by Filipinos
b. Majority owned by Filipinos
c. at least 60% is owned by Filipinos
d. at least 75% is owned by Filipinos
5. The service that an operator may be obliged to provide under a service concession arrangement
that is within the scope of IFRIC 12 is
a. Manufacturing services
b. Construction or upgrade services
c. Management advisory services
d. Operation services
e. b and d
6. The operator shall recognize revenue from a BOT contract that is within scope of IFRIC 12 using
a. PAS 18
b. IFRIC 12
c. PAS 11
d. PFRS 15
e. a or c
7. According to IFRIC 12, if the consideration from a service concession arrangement is in the form
of a financial asset, that asset shall be subsequently accounted for, after the construction
services are complete, using
a. IFRIC 12
b. SIC 29
c. PFRS 9
d. PFRS 15
8. An intangible asset received by an operator in a build-operate transfer contract with the
government is subsequently accounted for under
a. PAS 16
b. PAS 38
c. PAS 37
d. under a management-developed accounting policy
9. Under service concession agreement, the grantor contractually guarantees to pay the operator a
specified amount in exchange for the operator's services. The consideration in the arrangement
is in the form of
a. a financial asset
b. an intangible asset
c. partly a and partly b
d. either of these
10. Under a service concession agreement the grantor grants the operator a right to charge users of
the public service. The consideration in the arrangement is in the form of
a. a financial asset
b. an intangible asset
c. government grant
d. property, plant and equipment