1.

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

2. 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

Fortunate Co., a private contractor, wins a bid to construct a railway for the government. The terms of
the arrangement are as follows:
I. 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.
II. In exchange for the services, the government grants Fortunate Co. the right to collect fees from
railroad users in Years 3 to 10.
III. 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:

I. Construction services: P15M per year during the 2-year construction period
II. 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.

3. 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

4. How much revenue from services is recognized in Year 1?

a. 0
b. 15M
c. 18M
d. 20M

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:
I. 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.
II. In exchange for the operator's services, the government promises to pay Happy Co. P300M per
year in Years 3 to 10.
III. 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:
I. Construction services: Construction cost +30%
II. Operation services: Operation costs + 10%

The operator makes the following estimates of costs:

I. Construction services: P400M per year during the 2-year construction period
II. 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