NAME: Date:

Professor: Section: Score:

QUIZ:

1. Liabilities in the statement of affairs are classified into

a. Unsecured liabilities with priority
b. Fully secured creditors
c. Partially secured creditors
d. Unsecured liabilities without priority
e. All of these

2. Revenue from franchise contracts are accounted for in accordance with which of the following
reporting standards?
a. PAS 18 Part B
b. FAS No. 45 (US GAAP)
c. PFRS 15
d. A combination of (a), (b) and (c) above

3. If an entity’s promise to grant a license is distinct,

a. the general principles of PFRS 15 are applied to determine whether the performance obligation
is satisfied over time or at a point in time.
b. the specific principles of PFRS 15 are applied to determine whether the performance obligation
is satisfied over time or at a point in time.
c. both the general and specific principles are used to determine whether the performance
obligation is satisfied over time or at a point in time and whether the grant of license provides
the customer with a ‘right to access’ or a ‘right to use.’
d. US GAAP (FAS No. 45) is applied to determine whether there is substantial performance of
the initial services required in the contract.

4. It refers to the termination of business operations whereby an entity’s assets are disposed of in
order to settle all of the claims on the entity’s assets.
a. solidification
b. aquatation
c. dissolution
d. liquidation

5. Which of the following does not indicate that the nature of an entity’s promise to transfer a license
is to provide the customer the right to access the entity’s intellectual property as it exists
throughout the license period?
a. The intellectual property to which the customer has rights changes throughout the license
period.
b. The entity continues to be involved with its intellectual property
 c. The contract requires, or the customer reasonably expects, that the entity will undertake
activities that significantly affect the intellectual property to which the customer has rights
and the customer is exposed to any positive or negative effects of those activities.
d. The customer can direct the use of, and obtain substantially all of the remaining benefits from,
the license at the point in time at which the license is granted.

6. According to PFRS 15, if the nature of the entity’s promise to grant franchise rights in a franchise
agreement is to provide the franchisee the right to use the entity’s intellectual property as it exists
at the point in time at which the license is granted, the initial franchise fee is recognized as revenue
a. when there is substantial performance which is indicated by the commencement of the
franchisee’s business.
b. at the point in time when the rights are transferred to the franchisee and the franchisee obtains
the ability to use those rights.
c. over time, throughout the license period, starting from the time the rights are transferred to
the franchisee and the franchisee obtains the ability to use those rights.
d. b or c depending on the substance of the agreement

7. Which of the following statements is incorrect if an entity’s promise to grant a license is not distinct
and that the performance obligation is satisfied at a point in time?
a. Treat all promises in the contract, including the grant of license, as a single performance
obligation.
b. Recognize the fixed consideration as revenue in full when the license is effectively transferred
to the customer.
c. Recognize the sales-based (or usage-based) consideration in the contract in full when the
license is effectively transferred to the customer.
d. Recognize the sales-based (or usage-based) consideration in the contract as the subsequent
sales or usages occur, notwithstanding the fact that the performance obligation is satisfied at
a point in time.

8. If in subsequent periods the franchisee’s ability to pay significantly deteriorates and the
collectability of the consideration in the franchise agreement becomes significantly uncertain,
a. the entity discontinues recognizing further revenues from the franchise contract.
b. the entity assesses any existing receivable or contract asset from the franchise contract for
impairment.
c. the entity shall discontinue its existing accounting policy on revenue recognition and shifts to
either the installment sales method or the cost recovery method of revenue recognition.
d. a and b

9. If the promise to grant a license is distinct and that the license provides the customer the “right to
use” the entity’s intellectual property, how is revenue recognized from the initial fee in the
contract?
a. in full upon the signing of the contract
b. in full when the customer obtains control of the license
c. deferred and recognized in full at the end of the license period
d. deferred and amortized over the license period
10. The estimated recovery of partially secured creditors is equal to
a. the realizable value of the assets pledged plus the excess amount multiplied by the estimated
recovery percentage.
b. the realizable value of the assets pledged minus the excess amount multiplied by the estimated
recovery percentage.
c. their claims multiplied by the estimated recovery percentage.
d. any of these

11. On December 31, 20x1, Entity A enters into a contract with Customer X to transfer a license for a
fixed fee of ₱100,000 payable as follows:
 20% payable upon signing of contract.
 80% due in four equal annual installments starting December 31, 20x2. The appropriate
discount rate is 12%.

The license provides Customer X rights over Entity A’s patented processes. The agreement requires
Customer X to discontinue using its trade name and instead use Entity A’s trade name. Customer X
is bound by the terms of the contract to abide with Entity A’s policies on the use of the processes but
is given the right to any subsequent modifications to the processes. How much revenue from the
franchise contract will Entity A recognize in 20x1?
a. 80,747
b. 20,187
c. 20,000
d. 0

Use the following information for the next two questions:

A, B and C formed a joint operation for the sale of assorted fruits during the Christmas season. Their
transactions during the two-month period are summarized below:

Joint operation
Nov. 5 Merchandise-A 8,500 Nov. 15 Cash sales-C 20,400
12 Merchandise-B 7,000 18 Cash sales-C 4,200
14 Freight-in-C 200 30 Merchandise-B 1,210
Dec. 10 Purchases-C 3,500 Dec. 25 Unsold mdse. charged to A 540
22 Selling expenses-C 550

The joint arrangement provided for the division of gains and losses among A, B and C in the ratio of
2:3:5. The joint operation is to close on December 31, 2008.

12. What is the joint operation profit?

a. (6,600) c. 6,060
b. 6,600 d. (6,060)
13. What is the amount of cash that A will receive on final settlement?
a. 9,280 c. 8,500
b. 9,712 d. 1,212

14. On January 1, 20x1, Feedback, a music record label, licenses to a customer a 1975 recording of a
classical symphony by a noted orchestra. The customer, a consumer products company, has the
right to use the recorded symphony in all commercials, including television, radio and online
advertisements for 2 years in the Philippines. In exchange for providing the license, Feedback
receives a fixed consideration of ₱10,000 per month. The contract does not include any other goods
or services to be provided by Feedback. The contract is non-cancellable. The license is transferred
to the customer on January 1, 20x1. The appropriate discount rate is 12%. How much contract
revenue (excluding interest revenue) will Feedback recognize in 20x1?
a. 120,000 c. 202,806
b. 240,000 d. 212,434

15. On Jan. 1, 20x1, Hurt Co. entered into a franchise agreement with Hero Co. The franchise contract
gives Hero Co. the right to use Hurt’s trademark and proprietary processes for a period of 4 years.
The franchise requires payment of an upfront fee of ₱1,000,000, payable at contract inception, and
5% monthly royalty based on sales. Aside from the granting of the license, the franchise agreement
also requires Hurt Co. to undertake pre-opening activities to setup the contract and post-
commencement activities, such as research and development and marketing campaigns, to
support the intellectual property. Although the activities do not result in the direct transfer of a
good or service to Hero Co. as the activities occur, it is expected that Hero Co. will benefit from
them. All the necessary preparations were completed and Hero Co. started business operations
on January 31, 20x1. Hero had total sales of ₱9,000,000 in 20x1. How much revenue would Hurt
Co. recognize in 20x1?
a. 1,450,000
b. 700,000
c. 679,167
d. 489,310
Use the following information for the next four questions:
Andrix Asterix Co. has filed for voluntary insolvency and is going to liquidate. Andrix Asterix Co.’s
statement of financial position immediately prior to the liquidation process is shown below:
Andrix Asterix Co.
Statement of financial position
As of December 31, 20x0
ASSETS
Current assets:
Cash 160,000
Accounts receivable 880,000
Note receivable 400,000
Inventory 2,120,000
Prepaid assets 40,000
3,600,000
Noncurrent assets:
Land 2,000,000
Building, net 8,000,000
Equipment, net 1,200,000
11,200,000
Total assets 14,800,000
LIABILITIES AND EQUITY
Current liabilities:
Accrued expenses 884,000
Current tax payable 1,400,000
Accounts payable 4,000,000
6,284,000
Noncurrent liabilities:
Note payable (secured by equipment) 1,200,000
Loan payable (secured by land and building) 8,000,000
9,200,000
Capital deficiency:
Share capital 2,000,000
Retained earnings (deficit) (2,684,000)
(684,000)
Total liabilities and equity 14,800,000

Additional information:
The following information was determined before the start of the liquidation process:
a. Only 76% of the accounts receivable is collectible.
b. The note receivable is fully collectible, and in addition interest of ₱40,000 is expected to be
collected.
c. The inventory has an estimated selling price of ₱1,680,000 and estimated costs to sell of ₱40,000.
d. The prepaid assets are non-refundable.
e. The land and building have fair values of ₱8,000,000 and ₱3,200,000, respectively. However,
Andrix expects to sell both assets at a single price of ₱10,400,000. Costs to sell are negligible
because the prospective buyer agrees to shoulder all costs relating to the transfer of the property.
f. The equipment is expected to be sold at a net selling price of ₱800,000.
g. Administrative expenses of ₱120,000 are expected to be incurred in the liquidation.
h. The accrued expenses include accrued salaries of ₱100,000.
i. Interest of ₱60,000 is expected to be paid on the loan.
j. All the other liabilities are stated at their expected net settlement amounts.

16. How much are the total assets pledged to partially secured creditors?
a. 800,000
b. 3,140,000
c. 1,200,000
d. 400,000

17. How much are the total unsecured liabilities with priority?
a. 1,620,000
b. 220,000
c. 1,520,000
d. 100,000

18. How much are the total unsecured liabilities without priority?
a. 4,748,000
b. 4,884,000
c. 4,904,000
d. 5,184,000

19. What is the estimated recovery percentage of unsecured creditors without priority?
a. 75.85% c. 70%
b. 31.71% d. 24.15%

20. LL, MM and NN formed a joint operation to purchase a piece of lot and to erect an apartment
building for sale. LL is to manage the joint operation; hence, he will receive a bonus of 10% of the
joint operation’s gain before deducting the bonus as an expense. Any remaining gain or loss is to
be divided equally among the participants. The joint operation is completed on August 31, 20x1.
On this date, the accounts of MM and NN show the following balances:

Books of
MM NN
Account with LL 16,000 Cr. 16,000 Cr.
Account with MM 32,000 Cr.
Account with NN 18,000 Dr.

There are unused constructions supplies which LL agreed to take over at its cost of ₱42,000. Final
settlement with the joint operators will require payments as follows:
 a. LL pays NN ₱11,200, and MM pays NN ₱14,000.
b. LL pays NN ₱25,600, and MM ₱14,400.
c. LL pays MM ₱14,400, and NN pays LL ₱30,800.
d. LL pays MM ₱35,600, and NN pays LL ₱14,400.

Use the following information for the next two questions:

A, B, and C formed a joint operation. The joint operators shall make initial contributions ₱10 each.
Profit and loss shall be divided equally. The following data relate to the joint operation’s
transactions:

A B C
Joint operation (before closing) 8 Cr. 10 Cr. 12 Cr.
Expenses paid from JO cash 5 2 3
Value of inventory taken 5 6 4

21. How much were the sales of the joint operation?

a. 70 c. 40
b. 60 d. 90

22. How much was A’s share in the settlement?

a. 25 receipt c. 25 payment
b. 20 receipt d. 20 payment

Use the following information for the next two questions:

A and B formed a joint operation. The following were the transactions during the year:
A B
Total purchases 400 320
Total sales 480 240
Expenses paid 800
Other income 40

The joint operation was completed at the end of the year. Each joint operator is entitled to a 10%
commission on its purchases and a 20% commission on its sales. Any remaining profit or loss is
divided equally.

23. How much is the profit (loss) of the joint operation?

a. 760 c. 840
b. (760) d. (840)

24. On the cash settlement between the joint operators,

a. A pays B ₱368. c. A pays B ₱428.
b. B pays A ₱368. d. B pays A ₱428.
25. On January 1, 20x1, Pongcuter Co. enters into a contract with a customer to grant a software license
for ₱1,000,000. The fee is payable at contract inception. The license has a term of four years, to
reckon from the date the customer can use the software. The customer can determine how and
when to use the right without further performance by Pongcuter Co. and does not expect that
Pongcuter Co. will undertake any activities that significantly affect the intellectual property to
which the customer has rights. The software is transferred to the customer on February 1, 20x1.
However, the code, which is necessary for the customer to use the software, is transferred only on
April 1, 20x1. How should Pongcuter Co. recognize revenue from the fixed consideration in the
contract?
a. in full on February 1, 20x1
b. in full on April 1, 20x1
c. deferred and amortized over four years starting on February 1, 20x1
d. deferred and amortized over four years starting on April 1, 20x1

26. A, B, and C formed a joint operation which was completed during the year. The accounts of the
joint operators show the following balances:
Books of A Books of B Books of C
Account with A - 10 Dr. 10 Dr.
Account with B 16 Dr. - 16 Dr.
Account with C 26 Cr. 26 Cr.

On the cash settlement between the joint operators,

a. B and C pays A ₱16 and ₱10, respectively, for a total of ₱26 payment to A.
b. A and B pays C ₱10 and ₱16, respectively, for a total of ₱26 payment to C.
c. C pays A and B ₱10 and ₱16, respectively.
d. A, B and C pays D.

27. On July 1, 20x1, Wash Co. grants a franchisee the right to sell Wash Co.’s products in a specific
market over a period of 10 years. The franchise contract requires an upfront fee of ₱800,000, which
includes ₱100,000 for equipment that Wash Co. will provide to the franchisee. The amount reflects
the stand-alone selling price of the equipment. In addition, the franchisee will pay a 10% sales-
based royalty. Wash Co. has granted similar rights to other franchisees in other locations. Wash
Co. regularly undertakes activities that promote the brand name nationally. Wash delivers the
equipment to the franchisee on July 15, 20x1. The franchisee starts selling the products on August
1, 20x1 and reports total sales of ₱600,000 for the year. How much total revenue is recognized from
the contract in 20x1?
a. 860,000 c. 213,259
b. 760,000 d. 189,167
28. On January 1, 20x1, Baguio Beans, a well-known basketball team, licenses the use of its name and
logo to a customer. The customer, an apparel designer, has the right to use Baguio Beans’ name
and logo on items including t-shirts, caps, mugs and towels for two years. In exchange for
providing the license, Baguio Beans will receive a fixed consideration of ₱200,000 and a royalty of
20% of the sales price of any items using the team name or logo. The customer expects that Baguio
Beans will continue to play games and provide a competitive team. The license is transferred to
the customer at contract inception. The customer reports sales of ₱1,000,000 for the year. How
much revenue will Baguio Beans recognize from the contract in 20x1?
a. 400,000 c. 200,000
b. 300,000 d. 100,000

Use the following information for the next three questions:

Use Andrix Asterix Co.’s statement of financial position in the preceding problem but ignore the
additional information. Instead, use the information provided below.

Andrix Co.’s liquidation was entrusted to a receiver. The receiver identified the following before the
start of the liquidation process:
a. Liquidation costs of ₱120,000 are expected to be incurred during the winding up of Andrix Co.’s
business affairs.
b. Interest of ₱40,000 is expected to be collected on the note receivable.
c. Interest of ₱60,000 is expected to be paid on the loan payable.

The following were the actual transactions during the period:

a. Only ₱660,000 have been collected on the accounts receivable; the remaining balance was written-
off.
b. Only 90% of the note receivable was collected; the remaining balance was written-off. The interest
was collected as expected.
c. Half of the inventory was sold for ₱1,200,000. Actual costs to sell were ₱20,000.
d. The prepaid assets were written-off.
e. The land and building were sold for ₱10,400,000.
f. The equipment was sold for ₱880,000.
g. Accrued expenses of ₱100,000 were paid. The balance remains outstanding.
h. The current tax payable was paid in full.
i. The loan payable and interest payable were paid in full.
j. The lender accepted ₱880,000 as full payment of the note payable.
k. Administrative expenses relating to the liquidation amounted to ₱108,000.

29. The statement of realization and liquidation will show total “assets to be realized” of
a. 14,640,000. c. 14,068,800 .
b. 14,800,000. d. 14,234,200.

30. The statement of realization and liquidation will show total “liabilities to be liquidated” of
a. 15,664,000. c. 15,544,000.
b. 15,484,000. d. 15,244,000.
31. The statement of realization and liquidation will show net gain (loss) for the period of
a. 112,000. c. (122,000).
b. 122,000. d. 0.

32. On January 1, 20x1, an entity grants a franchisee the right to operate a restaurant in a specific
market using the entity’s brand name, concept and menu for a period of ten years. The entity has
granted others similar rights to operate this restaurant concept in other markets. The entity
commonly conducts national advertising campaigns, promoting the brand name, and restaurant
concept generally. The franchisee will also purchase kitchen equipment from the entity. The entity
will receive ₱950,000 upfront (₱50,000 for the kitchen equipment and ₱900,000 for the franchise
right) plus a royalty, paid quarterly, based on 4% of the franchisee’s sales over the life of the
contract. The ₱50,000 amount reflects the stand-alone selling price of the kitchen equipment. The
entity delivers the kitchen equipment to the customer on February 1, 20x1. The customer
commences business operations on April 1, 20x1 and reports total sales of ₱5,000,000 for the year.
How much total revenue should the entity recognize from the contract in 20x1?
a. 117,500
b. 317,500
c. 340,000
d. 1,150,000