IFRS 15 “Revenue from contracts with customers” 

Exercise 1:

Choose the most correct answer for each question below, unless otherwise stated.
1. Able sells a piece of equipment to Smythe for $1,800 on August 1. The equipment cost
$1,000. The equipment is picked up by Smythe on August 10. The contract also includes a 12
month service plan. How many performance obligations are included in this transaction?
A. 1
B. 2
C. 3
D. 4

2. ABC provides a product and installation to be used in conjunction with the buyer's production
system. The buyer's system is unusable without ABC's product. The product and the installation
are an example of ________.
A. three performance obligations
B. no performance obligations
C. a single performance obligation
D. two performance obligations

3. ABC Company enters into a contract with Edmond Library to help them streamline their
purchasing process. The contract specifies that Edmond Library will pay ABC $90,000 in the
form of a fixed fee plus an additional $10,000 if the library achieves $200,000 in cost savings.
ABC estimates a 55% chance that the library will achieve a $200,000 savings. Assume ABC
estimates that the transaction price is the expected-value transaction price. The transaction price
is recorded as ___________. Ignore any constraints on variable consideration.
A. $90,000
B. $95,500
C. $100,000
D. $84,500

4. Gray Uniforms is a wholesaler who sells school uniforms to retailers. On August 1, Gray
contracts with Excel School Uniforms to sell 2,000 uniforms to Excel to be delivered September
1. The contract price is set at $300 each. The contract provides for a 10% volume discount if
sales exceed 3,000 uniforms. The probability of sales exceeding 3,000 uniforms is expected to
be 71%. Using the most-likely-amount approach, the consideration is estimated to be ________.
A. $813,000
B. $639,000

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 C. $540,000
D. $426,000

5. Jones Corporation enters into a contract with Warner Video to add their programs to Jones'
network. Warner will pay Jones an upfront fixed fee of $250,000 for 12 months of access, and
will also pay a $100,000 bonus if Jones' users access Warner Video for at least 10,000 hours
during the 12 month period. Jones estimates that it has a 60% chance of earning the $100,000
bonus. Ignore any constraints on variable consideration. Refer to Jones Corporation. Using the
expected-value approach, the transaction price would be ________.
A. $150,000
B. $250,000
C. $310,000
D. $350,000

6. The general rule is that the transaction price should be allocated to the performance
obligations based on the relative standalone selling prices unless a discount is ________.
A. not related to all of the contract's performance obligations
B. related to all of the contract's performance obligations
C. less than the standalone selling price
D. not part of the variable consideration

7. Hopner Products enters into a contract with Tulles to sell three different products. The total
transaction price is $350,000. Each of the products is a separate performance obligation. Based
on the information presented in the table, what is the allocated transaction price of product Z
using the adjusted market assessment approach? (Round intermediary percentages to the nearest
hundredth percent, and round your final answer to the nearest whole number.)
Product Standalone Price Market Price
X $130,000 $110,000
Y $120,000 $150,000
Z Not Available $110,000
A. $104,055
B. $116,286
C. $116,667
D. $90,000

8. Which one of the following is not an indicator of the transfer of control to the buyer?
A. Seller has present right to payment for the asset.
B. Seller has legal title to the asset.
C. Seller has transferred physical possession of property.

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 D. Customer has accepted the asset.

9. Pemco Enterprises sells annual memberships to its shooting lodge. The memberships cost
$310 each. On January 1, Pemco sold 2,800 memberships and received cash. What journal
entry should Pemco Enterprises make on January 31st if adjusting entries are completed
monthly.
A. Debit Unearned Revenue; Credit Cash
B. Debit Membership Revenue; Credit Unearned Revenue
C. Debit Unearned Revenue; Credit Membership Revenue
D. Debit Cash; Credit Membership Revenue

10. IT Technology enters into a contract with the federal government to create a system for the
price of $19 million. IT receives $7.6 million when the contract is signed and the other $11.4
million upon completion of the project. The government maintains control of the system during
the creation process. IT estimates that 36,000 labor hours will be required to complete the
product. During the current year 10,800 labor hours are used and during the following year, the
remaining 25,200 hours were used. What will be included in the journal entry at the end of the
current year? (Round any intermediary calculations to the nearest cent, and round your final
answer to the nearest dollar.)
A. Debit to Service Revenue for $5,700,024
B. Credit to Unearned Revenue for $11,400,000
C. Credit to Service Revenue for $13,299,976
D. Debit to Unearned revenue for $5,700,024

Exercise 2:

Hill and Dale Enterprises offers a promotion that provides a customer signing up for a
membership the opportunity to enroll in educational courses. A customer signing up the first
time is entitled to a 25% discount off a full year 's worth of courses. A new membership costs
$1,600 annually and a year's worth of courses another $1,200. Hill and Dale estimate that
approximately 40% of the customers will take advantage of the 25% discount. The company is
offering a 10% discount on all courses at this time.
Required:
1. Identify the separate performance obligations in the new customer deal.
2. Allocate the price to the separate performance obligations. Use the most-likely amount
approach.
3. Record the journal entry to record the sale of a new membership and one year of
courses. The customer paid cash.

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 Exercise 3:

Mac Construction entered a contract to build a new multi-purpose sports centre on 1

January 2016. The construction is expected to take three years to complete at a cost of RM10.5
million.
Costs were budgeted at
2016 30%
2017 45%
2018 25%
The contract required 3 equal payments of RM4 million at 31 December 2016 and 31
December 2017 and on completion (expected 31 December 2018).
Progress billings for the year ended 31 December 2016, 2017 and 2018 are expected to
be RM3 million, RM9.5 million and RM12 million respectively.
Required:
1. Calculate the percentage of completion for 2016, 2017 and 2018.
2. Prepare extracts of statements of profit and loss, showing complete calculation of
revenues recognised, costs recognised and gross profits for each of the three years.
3. Prepare extracts of statements of financial position for each of the three years, showing
the gross amounts due from or due to customer.

Exercise 4:

Elegent Construction Sdn Bhd has a contract to construct a twin-building in Kuala

Lumpur. The contract price is RM40 million. The construction started in July 2016 and was
completed in November 2018.
The following table shows the position of the contract at the end of the year 2016, 2017
and 2018.
2016 2017 2018
RM’000 RM’000 RM’000
Variation to the contract price - increase - - 1,000
Cumulative costs incurred to date 8,750 25,830 32,000
Estimated cost to complete 26,250 11,070 -
Progress billings to date 8,000 29,500 41,000
Elegent Construction accrued profit on the contract using the percentage of completion
method measured by cost to date to total estimated cost.
Required:
1. Calculate the percentage of completion for 2016, 2017 and 2018.
2. Prepare extracts of statements of profit and loss, showing complete calculation of
revenues recognised, costs recognised and gross profits for each of the three years.

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 3. Prepare extracts of statements of financial position for each of the three years, showing
the gross amounts due from or due to customer.

Exercise 5:

Pablo Products, Ltd. sells stuffed animals to local convenience stores and small pharmacy
chains. All of Pablo’s sales are on consignment. The consignee receives a 15% commission for
each product sold.
Pablo completed the following consignment-related transactions:
Date Transaction Amount
February 2, 2020 Ships merchandise on consignment to Left Aid Cost = $400,000
Pharmacy. Retail Value = $1,000,000
May 15, 2020 Left Aid Pharmacy sells 75% of the consigned $750,000
inventory for cash.
June 1, 2020 Left Aid notifies Pablo about the sale and $750,000
remits the cash collected to Pablo, net of the
15% commission.
January 3, 2021 Left Aid sells the remainder of the consigned $250,000
merchandise for cash.
January 5, 2021 Left Aid notifies Pablo and remits the cash $250,000
collected net of the 15% commission.
Required:
Record all journal entries for consignment-related transactions for both the consignor and
consignee.

Exercise 6:

Casale Products Corporation manufactures and resurfaces bowling pins for commercial and
residential use. On January 2 of the current year, Casale signs a contract with Closmeyer Lanes
to be the exclusive supplier of pins for its lanes located throughout the United States. Casale
initially agreed to deliver 300,000 pins at a price of $15 each (i.e., total revenue $4,500,000).
Casale’s cost of sales is $10 per pin. Delivery of the pins is scheduled for December 31.
Under the terms of the agreement, Casale will also provide pin refurbishing services (free of
charge) that includes recoating the pins as requested by Closmeyer. Pin refurbishment contracts
are provided by Casale to other customers for an annual fee of $300,000.
Casale offers volume discounts to its customers. For purposes of this contract, volume discounts
will be granted to Closmeyer if total sales to the lanes exceed specified amounts. The discount
is related to the total sales and services provided. The volume discount schedule for this
contract, which includes the expected probability for each sales level, follows:

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 Probability of Reaching the
Sales Level Volume Discount Offered
Specified Sales Level
$4,500,000 0% 10%
$7,000,000 5% 60%
$10,000,000 8% 30%
The sales volume discount offer is retroactive in that if a sales level is reached, the refund for
the discount is applied to previous sales.
Required:
Perform the five steps in the revenue recognition process, assuming that Casale uses the
expected value approach to determine the transaction price and the residual approach to allocate
that transaction price. Provide all necessary journal entries to record revenue for the current
year.

Exercise 7:

Megrew Building Company is developing a multi-unit residential building complex. Kit Collier
enters into a binding sales contract with Megrew for a specified unit that is under construction.
Each unit is of a similar size and has a similar floor plan, but other characteristics of the units,
such as the location of the unit within the complex, are different.
Scenario 1. Collier pays a deposit of $10,000 that is refundable only if Megrew fails to complete
construction of the unit in accordance with the contract. The remainder of the contract price of
$240,000 is payable on completion of the contract when Collier obtains physical possession of
the unit. If Collier defaults on the contract before completion of the unit, Megrew has only the
right to retain the deposit.
Scenario 2. Collier pays a $10,000 nonrefundable deposit upon entering into the contract and
will make four progress payments during construction of the unit. The contract includes the
following other terms:
 Megrew is precluded from being able to transfer the unit to another customer.
 Collier does not have the right to terminate the contract unless Megrew fails to perform
as promised.
 If Collier defaults on its obligations by failing to make the promised progress payments,
Megrew would have a right to all of the consideration promised in the contract if it
completes the construction of the unit. (The courts have previously upheld similar rights
that entitle developers to require the customer to perform subject to the entity meeting
its obligations under the contract.)
Scenario 3. Use the same facts as in Scenario 2 except that in the event of Collier’s default,
Megrew can either require Collier to perform as required under the contract or Megrew can
cancel the contract, keep the unit under construction, and impose a penalty on Collier.
Required:
For each scenario, determine whether the performance obligation is satisfied over time or
at a point in time.
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 Exercise 8:

On April 7, 2020, McCool Systems signed a contract to develop and install a virtual private
network (VPN) for Billy Majors Stores. The transaction price, including installation, is
$580,000. The VPN consists of four components: regional offices, corporate office, retail
stores, and remote users (for example, buyers). Each component is fully functional at the point
of delivery. Each of the four components of the total network is correctly classified as a
performance obligation, and each has standalone fair values as follows:
VPN Component Standalone Sales Value
Regional offices $130,000
Corporate office 270,000
Retail stores 150,000
Remote users 50,000
Total $600,000
McCool collects the contract price in advance. McCool completed the regional office and
remote user components on December 31, 2020.
Required:
Prepare the journal entry to record the contract and to record any revenue to be recognized
during the current period. Show all supporting computations.

Exercise 9:

Muscle Movement (MM) is a company that operates a number of fitness clubs (‘gyms’). MM
is currently offering potential customers a new gym membership. The terms of the new gym
membership are:
 For an up-front cash payment of $900, new members will have full access to all the
training facilities at a nominated gym for a 12-month period. The $900 fee is non-
refundable. A 12-month gym membership alone is normally priced at $960.
 In addition, for the first three months of their membership, new members will receive
‘free’ access once a week to a half-hour individual session with a personal trainer. Three
months of such personal training sessions would normally cost members $420.
 And wait, there’s more! As an added incentive, all new members who attend all of their
sessions with the personal trainer in the first two months will receive a ‘free’ set of
training weights at the end of that two-month period. MM’s prior experience with such
offers is that all members receive the ‘bonus’ items at the end of the qualifying period.
The training weights normally have a retail price of $80.
Required:
1. Apply the five-step model in IFRS 15 to the above facts to decide when revenue will
be recognised by MM for the above gym membership offer.

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 2. Assume A. Wimp takes up the new gym membership offer from MM. He pays the
membership fee on 1 July 2017. Further assume that MM has early adopted IFRS 15 and
prepares monthly financial statements. What general journal entry(ies) should MM recognise
on (i) 1 July 2017 and (ii) 31 August 2017?

Exercise 10:

Webster Hall, Inc. is a major publisher of college textbooks. Webster Hall allows college
bookstores to return all purchases within two months of delivery. The company shipped
$700,000 in textbooks in December 2019 based on orders for the spring 2020 semester. Webster
Hall estimates that 35% of the books will be returned. All shipments were on account and
unpaid at the time of returns.
Required:
1. Prepare the journal entry to record sales and estimated returns for 2019. Ignore cost of
goods sold and inventory.
2. Assume that Webster Hall reports $189,000 in total sales returns in February 2020.
Prepare the journal entry required to record the total sales returns.

Exercise 11:

Scenario 1. Historically, about 8% of all the merchandise Asiago, Inc. sells is returned. On
January 4, Asiago sold merchandise costing $40,000 to a customer for $62,000 on account. On
January 17, Asiago refunded $3,200 for the return of some of the merchandise. On January 28,
Asiago sold merchandise costing $12,000 for $15,000 on account. Assume the company uses a
perpetual inventory system and all accounts are unpaid at the time of returns.
Scenario 2. Ray’s Sporting Goods, Inc. shipped aluminum baseball bats on consignment to
Martin Stores on April 6, 2019. The total cost of the bats is $31,000 with a retail value of
$50,000. Martin agrees to accept the consigned merchandise and is eligible to receive a 15%
commission on all sales. Martin sells the entire shipment to Anoi College and received cash on
May 28, 2019, and notifies Ray’s Sporting Goods immediately.
Scenario 3. ATickets.com sells discount airline tickets online. The company orders the tickets
after a customer makes a purchase request. Atickets.com earns a flat fee of 25% of the total
ticket price. The company sold $1,000,000 in airline tickets during the current year and had
collected $800,500 as of the end of the year. ATickets.com is an agent in this transaction and
thus uses the net revenue reporting method of accounting for sales.
Required:
1. Prepare the journal entries to record the sales, estimated returns, and the actual return
in the scenario 1.
2. Prepare the journal entries to record the consignment sale transactions on both Ray’s
and Martin’s books.
3. Record the sales transactions, the cash collections for the current year and the amount
remitted to the airlines.

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 Exercise 12:

Entity A manufactures and sells electronic goods. One particular product, Product X, is sold
with a six-month manufacturer’s warranty. Entity A also offers customers the option to
purchase an extended warranty on Product X. Under the extended warranty, Entity A will repair
products that become defective within 24 months from the date the manufacturer’s warranty
ends. Product X is sold for €640 per unit. A customer can purchase Product X plus the extended
warranty at a combined price of €720. Entity A’s financial year ends on 31 December. As at 31
December 20x6, Entity A estimates, based on its past experience and the number of units of
Product X sold in 20x6, that costs of €20,000 will be incurred to repair products that become
defective within six months of their sale.
Required:
1. Explain how the sale of Product X plus the related warranties should be accounted for
in the financial statements of Entity A.
2. IFRS 15 identifies two types of warranties: (i) service-type warranties and (ii)
assurance-type warranties. Distinguish between the two types of warranties and briefly outline
the accounting treatment specified for each warranty type.
3. Identify and explain the factors that should be considered in assessing whether a
warranty provides a customer with a service in addition to the assurance that the product
complies with agreed specifications.

Exercise 13:

Tyler Financial Services performs bookkeeping and tax-reportingservices to startup companies

in the Ocono area. On January 1, 2019, Tyler entered into a 3-year service contract with Walleye
Tech. Walleye promises to pay $10,000 at the beginning of each year, which at contract
inception is the standalone selling price for these services. At the end of the second year, the
contract is modified and the fee for the third year of services is reduced to $8,000. In addition,
Walleye agrees to pay an additional $20,000 at the beginning of the third year to cover the
contract for 3 additional years (i.e., 4 years remain after the modification). The extended
contract services are similar to those provided in the first 2 years of the contract.
Required:
1. Prepare the journal entries for Tyler in 2019 and 2020 related to this service contract.
2. Prepare the journal entries for Tyler in 2021 related to the modified service contract,
assuming a prospective approach.
3. Repeat the requirements for part (b), assuming Tyler and Walleye agree on a revised
set of services (fewer bookkeeping services but more tax services) in the extended contract
period and the modification results in a separate performance obligation.

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