Since 1977
FAR
FAR.2918-Trade and Other Receivables
DISCUSSION PROBLEMS
1. Which statement is incorrect regarding PFRS 15?
a. The standard outlines a single comprehensive
model for entities to use in accounting for revenue
arising from contracts with customers.
b. The standard supersedes revenue recognition
guidance in PAS 18 Revenue and PAS 11
Construction Contracts and related interpretations.
c. The core principle is that an entity recognizes
revenue to depict the transfer of promised goods
or services to customers in an amount that reflects
the consideration to which the entity expects to be
entitled in exchange for those goods or services.
d. None, all the statements are correct.
2. Arrange in proper sequence the five-step approach
that entities will follow in recognizing revenue in
accordance with PFRS 15:
I. Determine the transaction price
II. Identify the contract(s) with the customer
III. Identify the separate performance obligations in
the contract
IV. Recognize revenue when (or as) each performance
obligation is satisfied
V. Allocate the transaction price to separate
performance obligations
a. I, II, III, IV and V c. III, II, I, V and IV
b. II, III, I, V and IV d. II, III, V, I and IV
3. For PFRS 15 to apply, a contract with a customer
should meet which of the following conditions?
I. The contract has been approved by the parties to
the contract.
II. Each party’s rights in relation to the goods or
services to be transferred can be identified.
III. The payment terms for the goods or services to
be transferred can be identified.
IV. The contract has commercial substance.
V. It is probable that the consideration to which the
entity is entitled to in exchange for the goods or
services will be collected.
a. I, II, III, IV and V c. I, II, III and V
b. I, III, IV and V d. I, II, III and IV
4. Performance obligation is a promise in a contract with
a customer to transfer to the customer
a. A good or service (or a bundle of goods or
services) that is distinct.
b. A series of distinct goods or services that are
substantially the same and that have the same
pattern of transfer to the customer.
c. Either a or b.
d. Neither a nor b.
5. Which statement is incorrect regarding transaction
price in accordance with PFRS 15?
a. Transaction price is the amount of consideration to
which an entity expects to be entitled in exchange
for transferring promised goods or services to a
customer, excluding amounts collected on behalf of
third parties.
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OCAMPO/CABARLES/SOLIMAN/OCAMPO
OCTOBER 2020
b. An entity shall consider the terms of the contract
and its customary business practices to determine
the transaction price.
c. The nature, timing and amount of consideration
promised by a customer affect the estimate of the
transaction price.
d. The consideration promised in a contract with a
customer may include fixed amounts but not
variable amounts.
6. When determining the transaction price, an entity shall
consider the effects of:
I. Variable consideration
II. Constraining estimates of variable consideration
III. The existence of a significant financing
component in the contract
IV. Non-cash consideration
V. Consideration payable to a customer
a. I, II, III, IV and V c. III, IV and V only
b. II, III, IV and V only d. III and IV only
7. For the purpose of determining the transaction price,
an entity shall assume
a. That the goods or services will be transferred to
the customer as promised in accordance with the
existing contract.
b. That the contract may be cancelled.
c. That the contract may be renewed
d. That the contract may be modified.
8. Where a contract has multiple performance obligations,
an entity will allocate the transaction price to the
performance obligations in the contract by reference to
their relative
a. Standalone selling prices.
b. Fair values.
c. Net realizable values.
d. Any of the above.
9. Which statement is incorrect regarding recognition of
revenue?
a. Revenue is recognized as control is passed, either
over time or at a point in time.
b. Control of an asset is defined as the ability to
direct the use of and obtain substantially all of the
remaining benefits from the asset.
c. Control includes the ability to prevent others from
directing the use of and obtaining the benefits from
the asset.
d. The benefits related to the asset are the potential
cash flows that may be obtained only directly.
10. In accordance with PFRS 15, a receivable is
a. An entity’s right to consideration that is
unconditional (only the passage of time is required
before payment of that consideration is due).
b. An entity’s right to consideration in exchange for
goods or services that the entity has transferred to
a customer when that right is conditioned on
something other than the passage of time (for
example, the entity’s future performance).
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EXCEL PROFESSIONAL SERVICES, INC.

c. An entity’s obligation to transfer goods or services 17. The following information pertains to an entity’s
to a customer for which the entity has received accounts receivable:
consideration (or the amount is due) from the Accounts receivable, beginning P 3,800,000
customer. Credit sales 18,000,000
d. A party that has contracted with an entity to obtain Sales returns 280,000
goods or services that are an output of the entity’s Collections 15,300,000
ordinary activities in exchange for consideration. Promissory notes received in payment
of accounts receivable 2,000,000
11. At initial recognition, an entity shall measure trade Accounts receivable written off as
receivables at their transaction price (as defined in uncollectible 160,000
PFRS 15) if the trade receivables Collections on accounts previously
a. Do not contain a significant financing component in written off 60,000
accordance with PFRS 15. Accounts receivable used as collateral 1,000,000
b. When the entity applies the practical expedient in
accordance with paragraph 63 of PFRS 15. The entity’s accounts receivable balance at the end of
c. Either a or b. the period is
d. Neither a nor b. a. P6,060,000 c. P3,060,000
b. P4,060,000 d. P3,000,000
12. Receivables not measured initially at their transaction
price are measured initially at 18. On June 9, Seller Corp. sold merchandise with a list
a. Fair value price of P5,000 to Buyer on account. Seller allowed
b. Fair value less costs to sell trade discounts of 30% and 20%. Credit terms were
c. Fair value minus transaction costs that are directly 2/15, n/40 and the sale was made FOB shipping point.
attributable to the acquisition of the financial Seller prepaid P200 of delivery costs for Buyer as an
asset. accommodation. On June 25, Seller received from
d. Fair value plus transaction costs that are directly Buyer a remittance in full payment amounting to
attributable to the acquisition of the financial a. P2,744 c. P2,944
asset. b. P2,940 d. P3,000

13. In accordance with PFRS 9, receivables shall be LECTURE NOTES:

measured at amortized cost if
Accounting for Freight
a. The receivables are held within a business model
whose objective is to hold assets in order to collect Who should pay? Who actually paid?
contractual cash flows.
b. The contractual terms of the receivables give rise Buyer FOB shipping point Freight collect
on specified dates to cash flows that are solely
payments of principal and interest on the principal Seller FOB destination Freight prepaid
amount outstanding.
Deduct FOB destination Freight collect
c. Both a and b.
from AR
d. Either a or b.
Add to AR FOB shipping point Freight prepaid
14. The ideal measure of short-term receivables in the
statement of financial position is the discounted value
Gross and Net method of recording Sales
of the cash to be received in the future, failure to
follow this practice usually does not make the
Gross Net
statement of financial position misleading because
a. The amount of the discount is not material. Cash Deducted from Deducted from
b. Most short-term receivables are not interest discounts sales when granted sales whether
bearing. granted or not
c. The allowance for uncollectible accounts includes a
discount element. Cash Deducted from Not accounted for
d. Most receivables can be sold to a bank or factor. discounts sales (sales separately since
granted discounts) already deducted
15. Accounts receivable are normally reported at the: from sales
a. Present value of future cash receipts.
b. Current value plus accrued interest. Cash Included in sales Reported as other
c. Expected amount to be received. discounts income
d. Current value less expected collection costs. not (Forfeited sales
granted discounts)
16. New Corp has the following data relating to accounts
receivable at the end of the current year: 19. The Pacifier Company uses the net price method of
Accounts receivable P1,880,000 accounting for cash discounts. In one of its
Allowance for doubtful accounts 94,000 transactions on December 15, Pacifier sold
Allowance for sales discounts 10,000 merchandise with a list price of P500,000 to a client
Allowance for sales returns 15,000 who was given a trade discount of 20% and 15%.
Allowance for freight 3,000 Credit terms were 2/10, n/30. The goods were
shipped FOB destination, freight collect. On December
What is the net realizable value of New Corp.’s 20, the client returned damaged goods originally billed
accounts receivable? at P60,000. Total freight charges paid by the buyer
a. P2,708,000 c. P1,758,000 amounted to P7,500. What is the net realizable value
b. P1,880,000 d. P1,752,000 of this receivable on December 31?
a. P272,500 c. P280,000
b. P274,400 d. P333,200

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EXCEL PROFESSIONAL SERVICES, INC.
20. An advantage of using the net price method of
recording cash discounts on credit sales is
a. It simplifies recording of sales returns and
allowances.
b. It eases communication with customers about their
balances.
c. It requires less record-keeping efforts than the
gross method.
d. It properly reflects current period sales revenue.
21. In accordance with PFRS 15, how should volume
rebates and/or discounts on goods or services applied
retrospectively be accounted for?
a. As variable consideration.
b. As customer options to acquire additional goods or
services at a discount.
c. Either a or b.
d. Neither a nor b.
22. In accordance with PFRS 15, how are variable
considerations accounted for?
a. Included in transaction price.
b. Included in the transaction price only to the extent
that it is highly probable that a significant reversal
in the amount of cumulative revenue recognized
will occur when the uncertainty associated with the
variable consideration is subsequently resolved.
c. Included in the transaction price only to the extent
that it is highly probable that a significant reversal
in the amount of cumulative revenue recognized
will not occur when the uncertainty associated with
the variable consideration is subsequently
resolved.
d. Excluded from transaction price.
23. To account for the transfer of products with a right of
return (and for some services that are provided
subject to a refund), an entity shall recognize
a. Revenue for the transferred products in the
amount of consideration to which the entity
expects to be entitled (therefore, revenue would
not be recognized for the products expected to be
returned).
b. A refund liability.
c. An asset (and corresponding adjustment to cost of
sales) for its right to recover products from
customers on settling the refund liability.
d. All of these.
24. Which statement is incorrect regarding a refund
liability?
a. An entity shall recognize a refund liability if the
entity receives consideration from a customer and
expects to refund some or all of that consideration
to the customer.
b. A refund liability is measured at the amount of
consideration received (or receivable) for which the
entity does not expect to be entitled.
c. The refund liability shall be updated at the end of
each reporting period for changes
circumstances.
d. Changes in refund liability shall be recognized as
other income or expense.
25. Which statement is incorrect regarding an asset
recognized for an entity’s right to recover products
from a customer on settling a refund liability?
a. It shall initially be measured by reference to the
former carrying amount of the product (for
example, inventory) less any expected costs to
recover those products (including potential
decreases in the value to the entity of returned
products).
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b. At the end of each reporting period, an entity shall
update the measurement of the asset arising from
changes in expectations about products to be
returned.
c. An entity shall offset the asset and the refund
liability.
d. None, all the statements are correct.
26. Ely Corp. sold merchandise to various customers with
a list price of P1,000,000. The customers were given
trade discounts of 20% and 15%. Credit terms were
2/10, n/30. Based on experience, Ely expects that
50% will avail of the cash discounts and 10% will
return the products. In accordance with PFRS 15, Ely
should recognize revenue of
a. P680,000 c. P605,200
b. P673,200 d. P598,400
27. Seller Corporation sold P21,000 of merchandise during
the month of December, which was charged to a
national credit card. On December 15, Seller bills the
independent national credit card company for these
sales and is assessed a 5% service charge. On
December 21, a customer returned merchandise
originally sold for P2,000 and Seller notifies the credit
card company of the return. On December 29, the
credit card company remitted amount owed to Seller.
Which statement is incorrect?
a. In recording this sale, Seller should record an
account receivable from the credit card company.
b. Seller received P18,050 from the credit card
company.
c. Seller should recognize P18,050 as net revenue.
d. None, all the statements are correct.
28. Bangui Company provides for doubtful accounts
expense at the rate of 3 percent of credit sales. The
following data are available for last year:
Allow. for Doubtful Accounts, Jan. 1 P 54,000
Accounts written off as uncollectible 60,000
Collection of accounts written off 15,000
Credit sales, year-ended December 31 3,000,000
The allowance for doubtful accounts balance at
December 31, after adjusting entries, should be
a. P45,000 c. P90,000
b. P84,000 d. P99,000
LECTURE NOTES:
Direct write-off vs Allowance method
in
Accounting for doubtful accounts – Allowance method
Profit or loss approach
• % of sales
FOCUS: Doubtful accounts expense (Matching)
SFP approach
• % of accounts receivable
• Aging
FOCUS: Allowance for doubtful accounts (NRV of AR)
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EXCEL PROFESSIONAL SERVICES, INC.

29. What is the effect on net income at the time of the The estimated bad debt rates below are based on the
collection of an account previously written off under Corporation’s receivable collection experience.
each of the following methods? Age of accounts Rate
Direct write-off Allowance method 0 – 30 days 1%
a. No effect Increase 31 – 60 days 1.5%
b. Increase Increase 61 – 90 days 3%
c. Increase No effect 91 – 120 days 10%
d. No effect No effect Over 120 days 50%
The Allowance for Doubtful Accounts had a credit
30. On January 1, 2020, the balance of accounts
balance of P14,000 on December 31, 2020, before
receivable of Burgos Company was P5,000,000 and the
adjustment.
allowance for doubtful accounts on same date was
P800,000. The following data were gathered: The adjusting journal entry to adjust the allowance for
Credit sales Writeoffs Recoveries doubtful accounts as of December 31, 2020 will include
2017 P10,000,000 P250,000 P20,000 a debit to doubtful accounts expense of
2018 14,000,000 400,000 30,000 a. P52,795 c. P24,795
2019 16,000,000 650,000 50,000 b. P38,795 d. P14,000
2020 25,000,000 1,100,000 145,000
SOLUTION GUIDE:
Doubtful accounts are provided for as percentage of
Category Balance Rate Allow.
credit sales. The accountant calculates the percentage
annually by using the experience of the three years 0 - 30 days P262,400 1% P2,624
prior to the current year. How much should be
reported as 2020 doubtful accounts expense? 31 - 60 days 177,280 1.5% 2,659
a. P750,000 c. P330,000
b. P812,500 d. P875,000 61 - 90 days 130,400 3% 3,912

91 - 120 days 117,600 10% 11,760

31. John Corp. has the following data relating to accounts
receivable for the year ended December 31, 2020: Over 120 days 35,680 50% 17,840
Accounts receivable, January 1, 2020 P480,000
Allowance for doubtful accounts, P723,360 P38,795
January 1, 2020 19,200
Sales during the year, all on account,
terms 2/10, 1/15, n/60 2,400,000 33. Which statement is incorrect regarding presentation of
Cash received from customers during receivables in the statement of financial position?
the year 2,560,000 a. Trade receivables are reported under current
Accounts written off during the year 17,600 assets.
b. Non-trade receivables are included in the line item
An analysis of cash received from customers during the
‘trade and other receivables’ if they are expected
year revealed that P1,411,200 was received from
to be realized within twelve months after the
customers availing the 10-day discount period,
reporting period.
P792,000 from customers availing the 15-day discount
c. Non-trade receivables are reported as non-current
period, P4,800 represented recovery of accounts
if they are not expected to be realized within
written-off, and the balance was received from
twelve months after the reporting period
customers paying beyond the discount period.
d. None of these.
The allowance for doubtful accounts is adjusted so that
it represents certain percentage of the outstanding
accounts receivable at year end. The required 34. The following are normally included in the line item
percentage at December 31, 2020 is 125% of the rate trade and other receivables, except
used on December 31, 2019. a. Advances to officers and employees
b. Advances to subsidiaries and affiliates
The doubtful accounts expense for 2020 is
c. Receivables from sale of securities or property
a. P6,880 c. P8,720
other than inventory.
b. P7,120 d. P8,960
d. Dividends and interest receivable.
32. The accounts receivable subsidiary ledger of Besao
Corporation shows the following information:
35. In relation to receivables, an entity is required by
12/31 Invoice PFRSs to
Account a. Classify receivables as current and non-current in
Customer balance Date Amount the statement of financial position.
Maybe, Inc. P140,720 12/06 P56,000 b. Disclose any receivables pledged as collateral.
11/29 84,720 c. Disclose all significant concentrations of credit risk
Perhaps Co. 83,680 09/02 48,000 arising from receivables.
08/20 35,680 d. All of these.
Pwede Corp. 122,400 12/08 80,000
10/25 42,400
Perchance Co. 180,560 11/17 92,560
10/09 88,000
Possibly Co. 126,400 12/12 76,800
12/02 49,600
Luck, Inc. 69,600 09/12 69,600
Total P723,360 P723,360 - now do the DIY drill -

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EXCEL PROFESSIONAL SERVICES, INC.

DO-IT-YOURSELF (DIY) DRILL

1. On the December 31, 2020 statement of financial 4. Cabugao Company began operations on January 1,
position of Mann Company, the receivables consisted 2019. On December 31, 2019, Cabugao provided
of the following: for uncollectible accounts based on 5% of annual
Trade accounts receivable P 93,000 credit sales. On January 1, 2020, Cabugao changed
Allowance for uncollectible accounts ( 2,000) its method of determining its allowance for
Claim against shipper for goods lost in uncollectible accounts to the percentage of accounts
transit last November 2020 3,000 receivable. The rate of uncollectible accounts was
Selling price of unsold goods sent by determined to be 15% of the ending accounts
Mann on consignment at 30% of receivable balance. In addition, Cabugao wrote off
cost (not included in Mann's ending all accounts receivable that were over 1 year old.
inventory) 26,000 The following additional information relates to the
Security deposit on the lease of a years ended December 31, 2019 and 2020.
warehouse 30,000 2020 2019
Total P150,000 Credit sales P8,000,000 P6,000,000
Collections (including
How much should be reported as trade and other collections on
receivables in Mann's December 31, 2020 statement recovery) 6,950,000 4,500,000
of financial position? Accounts written off 70,000 None
a. P94,000 c. P120,000 Recovery in accounts
b. P68,000 d. P150,000 previously written off 20,000 None

2. When examining the accounts of Medved Company, How much is the provision for uncollectible accounts
you ascertain that balances relating to both for the year ended December 31, 2020?
receivables and payables are included in a single a. P125,000 c. P400,000
controlling account called receivables control that b. P122,000 d. P 72,000
has a debit balance of P4,850,000. An analysis of
the composition of this account revealed the 5. Don’t Let Me Down, Inc. estimates its doubtful
following: accounts by aging its accounts receivable. The
aging schedule of accounts receivable at December
Debit Credit 31, 2020 is presented below:
Account receivable –
Age of accounts Amount
customers P7,800,000
0 – 30 days P1,264,800
Accounts receivable –
31 – 60 days 691,500
officers 500,000
61 – 90 days 288,600
Debit balances –
91 – 120 days 114,975
creditors 300,000
over 120 days 59,100
Postdated checks from
P2,418,975
customers 400,000
Subscriptions 800,000 Don’t Let Me Down, Inc.’s uncollectible accounts
receivable experience for the past 5 years are summarized in
Accounts payable for the following schedule:
merchandise P4,500,000
0– 31 - 61 – 91 – Over
Credit balances in A/R Balance 30 60 90 120 120
customers’ accounts 200,000 Year Dec. 31 Days Days Days Days Days
Cash received in 2019 P1,968,750 0.3% 1.8% 12% 38% 65%
advance from 2018 1,500,000 0.5% 1.6% 11% 41% 70%
customers for goods 100,000 2017 697,500 0.2% 1.5% 9% 50% 69%
not yet shipped 2016 1,224,000 0.4% 1.7% 10.2% 47% 81%
Expected bad debts 150,000 2015 1,865,500 0.9% 2.0% 9.7% 33% 95%
After further analysis of the aged accounts The balance of the allowance for doubtful accounts
receivable, you determined that the allowance for at December 31, 2020 (before adjustment) is
doubtful accounts should be P200,000. What is the P126,751.
correct total of current net receivables?
The necessary adjusting journal entry to adjust the
a. P8,950,000 c. P8,600,000
allowance for doubtful accounts as of December 31,
b. P8,800,000 d. P8,850,000
2020 would include:
a. No adjusting journal entry is necessary.
b. A debit to retained earnings of P13,894.
3. Tyson, Inc. reported the following balances (after
c. A debit to doubtful accounts expense P140,644.
adjustment) at the end of 2020 and 2019.
d. A credit to allow. for doubtful accounts of
12/31/20 12/31/19 P13,894.
Total accounts receivable P105,000 P96,000
Net accounts receivable 102,000 94,500 6. A company, which has an adequate amount in its
During 2020, Tyson wrote off customer accounts Allowance for Doubtful Accounts, writes off as
totaling P3,200 and collected P800 on accounts uncollectible an accounts receivable from a bankrupt
written off in previous years. Tyson's doubtful customer. This action will
accounts expense for the year ending December 31, a. Reduce net income for the period.
2020 is b. Reduce the amount of equity.
a. P1,500 c. P3,000 c. Reduce total current assets.
b. P2,400 d. P3,900 d. Have no effect on total current assets.
J - end of FAR.2918 - J

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