Page |1

Chapter 3
Revenue from Contracts with Customers

1. ABC Co., a seller of concrete aggregates, enters into the following contracts:
i. A contract with Delta Co. to deliver goods. Payment is due one month after delivery.
ii. A contract with Echo Co. for the sale of 300 units of each of Products X and Y. The contract
states that the price of Product Y will be retrospectively reduced by 50% if Echo Co. makes a
cumulative purchase of at least 1,000 units of Product X within 6 months.
iii. A contract with Fafa Co. to deliver goods. At contract inception, Fafa Co. is broke. ABC Co.
expects that it can only collect 50% of the consideration.
iv. A contract with Gamma Co., an entity which is also engaged in the concrete aggregates
business, to exchange inventory to facilitate sales to customers in different geographical
areas of operations.

Identify the contracts to which PFRS 15 Revenue from Contract with Customers may not be applied.
a. Delta and Echo c. Fafa
b. Fafa and Gamma d. Gamma

2. Certain criteria must be met before a contract with a customer is accounted for under PFRS 15.
Which of the following precludes a contract from being accounted for under PFRS 15?
a. The consideration is collected in advanced
b. The contract is made orally
c. The contract does not result to a change in the risk, timing or amount of the entity’s future
cash flows.
d. The contract is neither oral nor written but rather implied by the entity’s business practices.

3. ABC Co. enters into a contract with XYZ, Inc. to deliver 2 apples, 3 mangoes, and 5 potatoes for a
total consideration of ₱100. In accounting for the contract, which of the following is probably not
true?
a. ABC Co. identifies three performance obligations in the contract.
b. ABC Co. allocates the ₱100 transaction price over the promises to deliver the apples,
mangoes and potatoes on the basis of relative stand-alone selling prices of those goods.
c. The allocation of the transaction price may result to the identification of a discount.
d. No revenue is recognized until all of the 2 apples, 3 mangoes and 5 potatoes are delivered
even though the 2 apples were delivered first before the mangoes and potatoes.

4. ABC Co., a manufacturer and dealer of printing machines, had the following transactions during
the period:
I. ABC Co. receives an order for the manufacture of a customized machine for a customer. The
customer pays half of the consideration at contract inception. The manufacturing lead time is
1 year. ABC Co. subcontracts a portion of the manufacturing to XYZ, Inc., another
manufacturer.
II. ABC Co. receives an order for a standard machine. Payment is due only after ABC Co. has
delivered and installed the machine. Additionally, the contract requires ABC Co. to perform
free maintenance services over a 3-month period after the machine is installed. ABC Co.
 Page |2

completes the delivery and installation by the end of the reporting period; however, the
maintenance period is not yet over.
III. ABC Co. receives an order for 2 machines. The first machine is delivered at contract
inception but the second machine will be delivered after two months. Payment is due only
after both machines are delivered. By the end of the reporting period, the second machine is
not yet delivered and the consideration is not yet collected.

Identify the contracts to which PFRS 15 Revenue from Contract with Customers may be applied.
a. Contract 1 c. Contracts 1, 2 and 3
b. Contract 3 d. None of these

5. It is an agreement between two or more parties that creates enforceable rights and obligations.
a. obligation c. revenue
b. contract d. any of these

6. According to PFRS 15 Revenue from Contracts with Customers contracts with customers are
a. written c. implied
b. oral d. any of these

7. The best evidence for the stand-alone selling price of a good or service is
a. the list price of the good or service
b. the contractually stated price of the good or service
c. the observable price at which the good or service can be sold separately under similar
circumstances and to similar customers
d. the entity’s estimate of the stand-alone selling price

8. Revenue is recognized when (or as) the entity satisfies a performance obligation. According to
PFRS 15 Revenue from Contracts with Customers, revenue is measured at
a. the fair value of the consideration received or receivable
b. the transaction price
c. the stand-alone selling price of the good or services transferred
d. the amount of the transaction price allocated to the performance obligation satisfied.

9. During the period ABC Co. transfers goods to XYZ, Inc. Which of the following does not
indicate that the transaction is a consignment arrangement?
a. ABC Co. retains legal title over the goods until XYZ, Inc. sells them to third parties.
b. ABC Co. can require the return of any unsold goods within 60 days.
c. If XYZ, Inc. is not satisfied with the goods, XYZ, Inc. has the right to return them to ABC Co.
d. ABC Co. can require XYZ, Inc. to transfer the goods to 123 Corporation.
e. XYZ, Inc. is not obligated to remit any payment to ABC Co. unless XYZ, Inc. sells the goods

10. A non-refundable upfront fee that relates to administrative tasks to set up a contract is most
likely accounted for as
a. a prepayment and recognized as revenue only when the related goods or services are
transferred to the customer.
b. a contract asset that is presented separately from contract liability in the statement of
financial position
 Page |3

c. as an outright expense
d. all of these

“As for everyone who comes to me and hears my words and puts them into practice, I will show you what they
are like. They are like a man building a house, who dug down deep and laid the foundation on rock. When a
flood came, the torrent struck that house but could not shake it, because it was well built. But the one who
hears my words and does not put them into practice is like a man who built a house on the ground without a
foundation. The moment the torrent struck that house, it collapsed and its destruction was complete.” (Luke 6:47-
49)

- END -
 Page |4

ANSWERS:
1
. D 6. D
2
. C 7. C
3
. D 8. D
4
. C 9. C
5
. B 10. A
 Page |5

1. On 1 July 20X7, The Pyretus Company, a manufacturer of office furniture, supplied goods to The
Natiso Company for ₱120,000 on condition that this amount was paid in full on 1 July 20X8.
Natiso had earlier rejected an alternative offer from Pyretus whereby they could have bought the
same goods by paying cash of ₱108,000 on 1 July 20X7. Under PFRS 15, how much relating to
this transaction should Pyretus recognize in profit or loss in respect of revenue and interest
income for the year ended 30 June 20X8?
Revenue Interest income
a. 108,000 12,000
b. 120,000 Nil
c. 108,000 Nil
d. 120,000 12,000
(Adapted)

2. On 1 July 20X7 The Otakamiro Company handed over to a client a new computer system. The
contract price for the supply of the system and after sales support for 12 months was ₱800,000.
Otakamiro estimates the cost of the after-sales support at ₱120,000 and it normally marks up
such costs by 50% when tendering for support contracts. Under PFRS 15, the revenue Otakamiro
should recognize in its financial year ended 31 December 20X7 is
a. 620,000 b. 800,000 c. 710,000 d. Nil
(Adapted)

3. On October 1, 20x3, Acme Fuel Co. sold 100,000 gallons of heating oil to Karn Co. at ₱3 per
gallon. Fifty thousand gallons were delivered on December 15, 20x3, and the remaining 50,000
gallons were delivered on January 15, 20x4. Payment terms were: 50% due on October 1, 20x3,
25% due on first delivery, and the remaining 25% due on second delivery. What amount of
revenue should Acme recognize from this sale during 20x3?
a. 75,000 b. 150,000 c. 225,000 d. 300,000
(AICPA)

4. In 20x2, Super Comics Corp. sold a comic strip to Fantasy, Inc. and will receive royalties of 20%
of future revenues associated with the comic strip. At December 31, 20x3, Super reported
royalties receivable of ₱75,000 from Fantasy. During 20x4, Super received royalty payments of
₱200,000. Fantasy reported revenues of ₱1,500,000 in 20x4 from the comic strip. In its 20x4
income statement, what amount should Super report as royalty revenue?
a. 125,000 b. 175,000 c. 200,000 d. 300,000
(AICPA)

5. Lin Co., a distributor of machinery, bought a machine from the manufacturer in November 20x3
for ₱10,000. On December 30, 20x3, Lin sold this machine to Zee Hardware for ₱15,000, under
the following terms: 2% discount if paid within thirty days, 1% discount if paid after thirty days
but within sixty days, or payable in full within ninety days if not paid within the discount
periods. However, Zee had the right to return this machine to Lin if Zee was unable to resell the
machine before expiration of the ninety-day payment period, in which case Zee’s obligation to
Lin would be canceled. In Lin’s net sales for the year ended December 31, 20x3, how much
should be included for the sale of this machine to Zee?
a. 0 b. 14,700 c. 14,850 d. 15,000
(AICPA)

Use the following information for the next two questions:

 Page |6

DISCALCED BAREFOOTED NAKASAKASAKA Supermarket, Inc. awards customers loyalty

points for their purchases. A customer is entitled to one point for every ₱400 purchase. The points
accumulated may be redeemed for awards in the form of appliances, electronics, groceries and other
household items. DISCALCED estimates the stand-alone selling price of each point at ₱4.00. During
the period, DISCALCED made total sales of ₱40M to cardholders.

6. How much sales revenue is recognized?

a. 400,000 b. 40,000,000 c. 39,600,000 d. 0

7. How much is the deferred revenue from loyalty points?

a. 400,000 b. 40,000,000 c. 39,600,000 d. 0

8. Wren Corp.’s trademark was licensed to Mont Co. for royalties of 15% of sales of the
trademarked items. Royalties are payable semiannually on March 15 for sales in July through
December of the prior year, and on September 15 for sales in January through June of the same
year. Wren received the following royalties from Mont:
March 15 September 15
20x2 10,000 15,000
20x3 12,000 17,000

Mont estimated that sales of the trademarked items would total ₱60,000 for July through December
20x3. In Wren’s 20x3 income statement, the royalty revenue should be
a. 26,000 b. 29,000 c. 38,000 d. 41,000
(AICPA)

9. Rill Co. owns a 20% royalty interest in an oil well. Rill receives royalty payments on January 31
for the oil sold between the previous June 1 and November 30, and on July 31 for oil sold
between December 1 and May 31. Production reports show the following oil sales:

June 1, 20x2 - November 30, 20x2 300,000

December 1, 20x2 - December 31, 20x2 50,000
December 1, 20x2 - May 31, 20x3 400,000
June 1, 20x3 - November 30, 20x3 325,000
December 1, 20x3 - December 31, 20x3 70,000

What amount should Rill report as royalty revenue for 20x3?

a. 140,000 b. 144,000 c. 149,000 d. 159,000
(AICPA)

“Call upon me in the day of trouble; I will deliver you, and you shall glorify me.”
(Psalms 50:15)

- END –

SOLUTIONS
1. A Revenue = 108,000 cash selling price; Interest income = (120,000 – 108,000) = 12,000

2. C
 Page |7

Satisfac-tion
of perfor-
Performance Allocation of transaction mance
obligations Allocation method price obligation Revenue
Expected cost plus a
After-sales support margin (120,000 x 150%) = 180,000 50%a 90,000

Computer system Residual (800,000 - 180,000) = 620,000 100% 620,000

710,000
a
(6 mos. over 12 mos.)

3. B (50,000 gallons delivered in 20x3 x ₱3 per gallon) = 150,000

4. D (1,500,000 x 20%) = 300,000

5. A No revenue is recognized because the control over the machine is not transferred.

6. C ₱40M – [(₱40M ÷ 400) x ₱4)] = 39,600,000

7. A [(₱40M ÷ ₱400) x ₱4] = 400,000

8. A
Royalty revenue for Jan. to June, 20x3
17,000
(received on Sept. 20x3)
Royalty revenue for July to Dec., 20x3 (60,000 x 15%) 9,000
Total royalty revenue 26,000

9. C
Solution:
December 1, 20x2 - May 31, 20x3 400,000
December 1, 20x2 - December 31, 20x2 (50,000)
June 1, 20x3 - November 30, 20x3 325,000
December 1, 20x3 - December 31, 20x3 70,000
Oil sales in 20x3 745,000
Multiply by: 20%
Royalty revenue in 20x3 149,000