Chapter 11

Conceptual Guide for Problem I-III

According to the paragraph B62 of IFRS 15, when determining whether a license provides a right to access or to
use the entity’s intellectual property, an entity should disregard restrictions of time, geographical region or use
because, those restrictions define the attributes of the promised license, rather than whether the entity satisfies its
performance obligation at a point in time or over time.

According to paragraph B58 of PFRS 15, the entity’s intellectual property provides a right to access if all of the
following criteria are met: “a. 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 (see
paragraphs B59 and B59A); b. the rights granted by the license directly expose the customer to any positive or
negative effects of the entity’s activities identified in paragraph B58(a); and c. those activities do not result in the
transfer of a good or a service to the customer as those activities occur (see paragraph 25).”

Problem I
S1: In this situation, the license granted provides access (overtime) for the length of the contract (3 years)
agreement results in a performance obligation satisfied over time
S2: In this situation, the license that conveys no other expectations from the seller results in a performance
obligation that is satisfied at a point in time.

Problem II
The performance obligations relate to the license and the consulting services. They are distinct.
1. 1 PO - If interdependent, the contract is accounted for as a single revenue amount of P200,000.
2. 2 PO - If not interdependent, service revenue is P75,000 and the license revenue is P125,000, based on
estimated standalone values.

Problem III
1. That citation requires that both of the following two events have occurred:
a. The sales that utilize the intellectual property have occurred.
b. The performance obligation to which the royalty has been allocated has been satisfied.
Therefore, Juliet can’t recognize revenue for sales-based royalties on the Francis license until sales have
actually occurred.

2. If Juliet accounts for the Francis license as a right of use that is conveyed on April 1, 20x4, Juliet can recognize
revenue of P500,000 on that date, because that is the date upon which Juliet transfers to Francis the right to
use its intellectual property. The journal entry would be:
Cash 500,000
License revenue 500,000

3. Juliet recognizes revenue for sales-based royalties in the period in which uncertainty is resolved. Juliet earned
P1,000,000 of royalties on Francis sales in 20x4, so it should recognize revenue in that amount. The journal
entry would be:
Cash 1,000,000
License revenue 1,000,000

4. If Juliet accounts for the Francis license as an access right for the period from April 1, 20x4, through March
31, 20x9, Juliet cannot recognize any revenue on April 1, 20x4, because it fulfills its performance obligation
over the access period and no time has yet passed. Instead, Juliet must recognize deferred revenue of
P500,000. The journal entry would be:
Cash 500,000
Deferred revenue 500,000
As of December 31, 20x4, Juliet has partially fulfilled its performance obligation to provide access to its
intellectual property. Given that the access right covers a five-year period (from April 1, 20x4, through March
31, 20x9), and Juliet provided access for nine months of 20x4 (from April 1, 20x4, through December 31,
20x4), Tran has provided 15% [9 ÷ (5 × 12)] of the access right during 20x4, and should recognize 15% ×
 P500,000 = P75,000 of revenue. Juliet also should recognize revenue for the P1,000,000 of royalties arising
from Francis sales in 20x4. So, total revenue recognized in 20x4 is P75,000 + P1,000,000 = P1,075,000. The
journal entry would be:
Cash 1,075,000
License revenue 1,075,000

Problem IV
1. The entries for the above transactions are as follows:
a. December 31, 20x7: Date of Signing
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 228,000.00
Notes receivable (P570,000 – P228,000) . . . . . . . . . . . . . . . . . . . . . . . 342,000.00
Unearned interest income (or Discount on notes receivable) . . 69,084.00
Unearned franchise revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 228,000,00
Unearned service revenue – training, etc. . . . . . . . . . . . . . . . . . . . 113,316.00
Unearned sales revenue – machinery and equipments, etc. . . . 159,600.00
b. February 1, 20x8: No entry since outlet not yet opened
c. February 28, 20x8: Date of Opening
Unearned franchise revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 228,000.00
Franchise revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 228,000.00
Unearned service revenue – training, etc. . . . . . . . . . . . . . . . . . . . . . 113,316.00
Service revenue – training, etc………………………………………… 113,316.00
Unearned sales revenue – machinery and equipment, etc.. . . . . . . 159,600.00
Sales revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159,600.00
Cost of goods sold. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114,000.00
Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114,000.00
2.
a. There are three performance obligations in the contract for franchise:
PO 1 - Rights to the trade name, market area, and proprietary know-how for 5 years are not individually distinct. Each one is
not sold separately and cannot be used with other goods or services that are readily available to the franchisee.
Combined rights give rise to a single performance obligation,
PO 2 - Training services, and
PO 3 - Equipment
Note: It should be noted that training (similar) services and equipment are distinct and can be sold separately.
Commingled Revenue (Point in Time and Over Time) - It refers to a single initial franchise fee for franchise rights, initial
services, tangible property such as supplies and equipment. The portion of the fee applicable to these assets shall be based on
their fair values and these assets are recognized upon transfer of ownership regardless when substantial performances of
services were made.
 Dominador’s cannot recognize revenue for the royalty payments because it is not reasonably assured to be entitled to
those sales-royalty amounts. That is, these payments represent variable consideration (variable consideration encompasses
any amount that is variable under a contract, including, for example, performance bonuses, penalties, discounts, rebates, price
concessions, incentives and the customer’s right to return products. Variable consideration is considered to be a component of the
transaction price. It is part of the consideration to which an entity expects to be entitled in exchange for transferring promised
goods or services and therefore should be estimated and included in the transaction price for revenue recognition purposes)
Therefore, Dominador’s recognizes revenue for the royalties when (or as) the uncertainty is resolved.
 Dominador’s promise to stand ready to PROVIDE PRODUCTS/SERVICES to the franchisee in the future at a
standalone selling price is NOT ACCOUNTED for as a SEPARATE PERFORMANCE OBLIGATION (PO) in the
contract because it DOES NOT PROVIDE Dian Jaycerette with a material right (a “material right” is something the
customer wouldn’t get otherwise, so the seller is obligated to provide it or if the customer is in effect paying in advance for future
goods and services such option provides the customer with a “material right”, then the option should be accounted for as a
separate performance obligation)
Thus, revenue from those sales is recorded in the future when the sales are made.

b. Point-in-Time: – Those combined rights (trade name, market areas and proprietary know-how) give rise to a single performance
obligation. Dominador’s satisfies performance obligation at point in time when Dian Jaycerette obtains CONTROL of the RIGHTS.
That is, once Dian Jaycerette begins operating the store. Dominador has no further obligation with respect to these rights.

c. As of December 31, 20x7, only signing of agreement and receipts of upfront payment and note were made. Consider the following for
allocation of the transaction price at December 31, 20x7.
Rights to the trade name, market area, technical and proprietary know-how. P 228,000.00
Services – training, etc.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113,316.00
 Machinery and equipments, etc. (costing, P114,000). . . . . . . . . . . . . . . . . . . . . . . _159,600.00
Total transaction price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 500,916.00
The entries on December 31, 20x7: Dominador’s signs the agreement and receives upfront payment and note.
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 228,000.00
Notes receivable (P570,000 – P228,000) . . . . . . . . . . . . . . . . . . . . . . . 342,000.00
Unearned interest income (or Discount on notes receivable) . . 69,084.00
Unearned franchise revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 228,000,00
Unearned service revenue – training, etc. . . . . . . . . . . . . . . . . . . . 113,316.00
Unearned sales revenue – machinery and equipments, etc. . . . 159,600.00

Training is completed in February 1, 20x8, the equipment is installed in February 2, 20x8, and Doming holds a grand opening on
February 4, 20x8.
It should be noted that training (similar) services and equipment are distinct and can be sold separately. Dominador’s satisfies those
performance obligations (services and equipment) when it transfer the services and equipment to Doming.
d. P500,916
February 4, 20x8: Franchise opens. Dominador’s satisfies the performance obligations (point in time) related to the franchise rights,
training and equipment. That is, Dominador’s has no further obligations related to these elements of the franchise. Therefore, franchise
revenue amounted to P500,916.
Unearned franchise revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 228,000.00
Franchise revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 228,000.00
Unearned service revenue – training, etc. . . . . . . . . . . . . . . . . . . . . . 113,316.00
Service revenue – training, etc………………………………………… 113,316.00
Unearned sales revenue – machinery and equipment, etc.. . . . . . . 159,600.00
Sales revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159,600.00
Cost of goods sold. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114,000.00
Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114,000.00
As indicated, when Doming begins operations, Dominador’s Pizza satisfies the performance obligations (point in time) related to
the franchise rights, training and equipment under the franchise agreement . That is, Dominador’s has no further obligations
related to these elements of the franchise.
e. P59,850
Dominador’s recognizes revenue for the royalties (continuing fee) when (or as) the uncertainty is resolved (over time ). On
December 31, 20x8, the continuing (royalty) franchise fees:
Accounts receivable (P5,985,000) x 1%). . . . . . . . . . . . . . . . . . . . . . . . 59,850
Franchise revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59,850

December 31, 20x8: To record payment received and interest income on note:
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68,400.00
Notes receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68,400.00
Unearned interest income (or Discount on notes receivable). . . . . . . 21,833.28
Interest income (P272,916 x 8%). . . . . . . . . . . . . . . . . . . . . . . . . . . 21,833.28
f. P560,766
Therefore, the total amount of franchise revenue recognized on December 31, 20x8 amounted to P467,466.50 computed as follows:
Franchise Revenue:
(Point in time, February 4, 20x8):
Initial Franchise Fee.............................................................................. P 500,916
(Over time)
Continuing franchise fee , P5,985,000 x 1%)...................................... 59,850
Total Franchise revenue............................................................................... P 560,766
g. P446,766
Therefore, the total amount of franchise revenue recognized on December 31, 20x8 amounted to P467,466.50 (net income of
P390,673.82) computed as follows:
Total Franchise revenue (refer to “F)....................................................................P 560,766
Less: Cost of goods sold....................................................................................... 114,000
Gross profit.............................................................................................................P 446.766
Less: Operating expenses..................................................................................... 0.00
P 446,766
Add: Interest income............................................................................................. 21,833.28
Net income..............................................................................................................P 468,599.28
h. P468,599.28 or P468,599
Therefore, the total amount of franchise revenue recognized on December 31, 20x8 amounted to P467,466.50 (net income of
P390,673.82) computed as follows:
Total Franchise revenue (refer to “F)....................................................................P 560,766
Less: Cost of goods sold....................................................................................... 114,000
Gross profit.............................................................................................................P 446.766
Less: Operating expenses..................................................................................... 0.00
P 446,766
 Add: Interest income............................................................................................. 21,833.28
Net income..............................................................................................................P 468,599.28

Problem V – Franchises; Residual Method (Correction: Butch Atianzar: Pentagon)

1.
Total amount of franchise agreement P 720,000
Less: stand-alone selling price of training (18,000)
Less: stand-alone selling price of building and equipment __(540,000)
Stand-alone selling price of five-year right P 162,000

2. As of July 1, 20x6, Edgardo S. Cabalde has not fulfilled any of its performance obligations, so the entire
P600,000 franchise fee is recorded as deferred revenue.
Cash 90,000
Notes receivable 630,000
Deferred revenue 600,000

3. On September 1, 20x6, Edgardo S. Cabalde has satisfied its performance obligations with respect to training
and certifying Perkins and delivering an equipped Monochrome Muffler building. Therefore Edgardo S.
Cabalde should recognize revenue of P18,000 + P540,000 = P558,000 on that date. In addition, by December
31, 20x6, Edgardo S. Cabalde has earned 4 months of revenue (September – December) associated with the
five-year right it granted to Pentagon (Butch Atianzar), so Edgardo S. Cabalde should recognize revenue of
P135,000 × (4 ÷ (5 × 12)) = P9,000 associated with that right. Total revenue recognized for the year ended
December 31, 20x6, is P558,000 + P9,000 = P567,000.

Problem VI – Non-refundable Upfront Fee

1. The total revenue of P50,000 (100 contracts x P500) should be allocated to the two performance obligations
based on their relative fair values. In this case, the fair value of each tablet is P250 and the fair value of the
internet service is P286. The total fair value to consider is P536 (P250 + P286) for each contract. The allocation
for each contract is as follows.

Tablet (P250 / P536) x P500 = P233

Internet service (P286 / P536) x P500 = P267
The present value of the future payments on the internet service
(P7,200* x 2.5771 [PVOA n=3, i=8%]) = P18,555
*P72 X 100
January 2, 20x5
Cash (P10,000 + P21,445*).......................................................................................... 31,445
Notes Receivable (P72 x 3 x 100)................................................................................ 21,600
UII/Discount on Notes Receivable (P21,600 – P18,555) 3,045
Unearned Service Revenue (100 x P267)........................................................ 26,700
Sales Revenue (100 x P233)............................................................................ 23,300
Cost of Goods Sold (P175 X 100)............................................................................... 17,500
Inventory.......................................................................................................... 17,500
*Cash received on 100 contracts:
Total contract price P50,000
Less upfront payment on the internet service 10,000
Less the PV of the note receivable 18,555
P21,445
The sale of the tablets (and gross profit) should be recognized once the tablets are delivered on January 2,
20x5.
Amortization Schedule for the Notes Receivable
Date Cash Interest Revenue Amortization Balance
January 2, 20x5 - - - P18,555
January 2, 20x6 P7,200 P1,484 P5,716 12,839
January 2, 20x7 P7,200 1,027 6,173 6,666
 January 2, 20x8 P7,200 534 6,666 -0-
2. December 31, 20x6
Interest Receivable (P12,839 X 8%)............................................................................ 1,027
Interest Revenue............................................................................................... 1,027
(To accrue interest on the note receivable)
Unearned Service Revenue (P26,700 ÷ 4)................................................................... 6,675
Service Revenue............................................................................................... 6,675
(To record revenue for Internet service provided in 20x6)
3. December 31, 20x7
Interest Receivable (P6,666 X 8%).............................................................................. 534
Interest Revenue............................................................................................... 534
(To accrue interest on the note receivable)

Unearned Service Revenue (P26,700 ÷ 4)................................................................... 6,675

Service Revenue............................................................................................... 6,675
(To record revenue for internet service provided in 2017)

4. Without reliable data with which to estimate the standalone selling price of the Internet service Tablet
Tailors allocates P250 for each contract to revenue on the tablets, with the residual amount allocated to the
Internet service.
Tablet Tailors makes the following entries.
January 2, 20x5
Cash (P10,000 + P21,445*).......................................................................................... 31,445
Notes Receivable (P7,200 x 3)..................................................................................... 21,600
Discount on Notes Receivable......................................................................... 3,045
Unearned Service Revenue
   (Internet Service) (P250 X 100).................................................................... 25,000
Sales Revenue (Equipment)............................................................................. 25,000
Cost of Goods Sold...................................................................................................... 17,500
Inventory.......................................................................................................... 17,500
The sale of the tablets (and gross profit) should be recognized once the tablets are delivered on January 2,
20x5. Tablet Tailors will recognize service revenue of P6,250 (P25,000 ÷ 4) in each year of the 4-year
contract.

Problem VII – Non-refundable Upfront Fee Considerations

The following items should be taken into consideration by Physical Gym:
1. In this case, the membership fee arrangement may be viewed as a single performance obligation (similar
services are provided in all periods). That is, Physical Gym is providing a discounted price in the second
and third years for the same services, and this should be reflected in the revenue recognized in those
periods.
2. Physical Gym determines the total transaction price to be P144,000 - the upfront fee of P14,400 and the 3
years of monthly fees of P129,600 (P3,600 x 36 months) - and allocates it over the 3 years.
3. In relation to No. 2, the Physical Gym would report revenue of P4,000 [(P144,000 / 36 months) each month
for 3 years.

Problem VIII
1. The journal entries shown below would be made on the consignor’s and consignee’s books (assume the use of
perpetual inventory):

Entries on Consignor’s Books Entries on Consignee’s Books

Transactions (Castro Cura) (Lavadia Enterprises)
Shipment of goods on Inventory on No entry
consignment. Consigment…… 60,000 (memorandum entry
Finished Goods only)
Inventory*.... 60,000
 Inventory on
2. Payment of expenses Consignment….. 600 No entry
by consignor. Cash…….. 600

Inventory on Consignor
3. Payment of expenses Consignment…… 2,400 Receivable 2,400
by consignee. Consignee Cash 2,400
Payable……… 2,400

Advances by Cash……… 3,360 Advances to

Consignor Advances from Consignor 3,360
Consignee….. 3,360 Cash 3,360
Sale of merchandise No entry. Cash 48,000
Consignor payable 48,000

6. Notification of sale to
consignor and Commission 4,800 Consignor Payable.. 48,000
payment of cash due. expense Commission 4,800
Commission: Advances from 3,360 Revenue
10% x P48,000 = Consignee…… 37,440 Consignor 2,400
P4,800 Cash……. Receivable 37,440
Consignee Payable 2,400 Cash………
Consignment Advances 3,360
Sales Revenue 48,000 from C’nee

7. To record cost of
goods sold and Cost of goods sold** 31,500
related costs. Inventory on
** (P60,000 + P600 + Consignment 31,500
P2,400) x ½ =
P31,500
*if periodic method is used, the credit should be “consignment shipments” account treated as reduction in the Costs of goods
available for sale to arrive at Cost of Goods Sold Available for Regular Sale.

2. The remittance amounting to P37,440 can be determined by preparing the Account Sales as follows:

Sold for the Account of:

Juice
Sales (60 sachets of herbal goods) P48,000
Charges:
Finishing costs…………………….. P 2,400
Commission (P48,000 x 10%)……………….. 4,800 7200
Due to Consignor……………………………. P40,800
Less: Advances………………. 3,360
Balance………………………… P37,440
Remittance Enclosed……………… 37,440
Balance Due…………… P 0
Items on Hand (50 sachets of herbal goods): P60,000 x 50% P30,000

Problem IX
1. The account sales:
Sold for the Account of:
Vera Fudge Company
Sales (8 sets @ P24,000)……………… P 192,000
Charges:
Freight-in…………… P 6,000
Advertising expense………… 2,400
 Deliveries and installation expenses 9,600
Repairs expense – on units sold.. 4,800
Commissions, 25% of sales 48,000 70,800
Due to Consignor……………………………. P121,200
Less: Advances………………. 0
Balance………………………… P121,200
Remittance Enclosed……………… 30,000
Balance Due…………… P 91,200
Items on Hand………… 15 sets
Items Returned (defective)….……. 2 sets

2. The inventory on consignment amounted to P189,000 computed as:

Charge Analysis
Sales Inventory Total
(8 sets) (15 sets) (25 sets)
Charges by consignor:
Cost of consigned goods
(@P12,000/set) P 96,000 P180,000 P 300,000
Freight-out (P9,000/25 sets = P360 per set) 3,600* 5,400 9,000
Charges by consignee:
Freight-in (P6,000/25 sets =P240 per set) 2,400* 3,600 6,000
Advertising expense………….. 2,400 0 2,400
Delivery and installation 9,600 0 9,600
Repairs expense…………… 4,800 0 4,800
Commissions [25% of sales (8 sets x
P24,000 per set] 48,000 0 ___48,000
Total P166,800 P189,000 P379,800
* Freight on sets returned is charged against sales of the period.
** Normally, the term “freight-out” is synonymous to “delivery expense” which is classified as selling
expenses if we are dealing with a third party. But, for consignment accounting where the transfer of
merchandise if from consignor to consignee, the usage of the term “freight-out” does not construed to be a
selling expense but still an inventoriable cost (which is part of freight-in).

The consignment net income amounted to P25,200 computed as:

Consignment Sales (8 sets x P24,000 per set) P 192,000
Less: Costs and expenses:
Charges by Consignor:
Cost of consigned goods @P12,000/set) P 96,000
Freight-out (P9,000/25 sets = P360 per set) 3,600* 99,600
Charges by consignee:
Freight-in (P6,000/25 sets =P240 per set) P 2,400*
Advertising expense………….. 2,400
Delivery and installation 9,600
Repairs expense…………… 4,800
Commissions [25% of sales (8 sets x P24,000 per set] 48,000 67,200
Net Income P 25,200

Problem X (as a guide – use the same table in Problem IX requirement No. 2)
1. Inventoriable costs:
80 units shipped at cost of P50,000 each.................................................................. P4,000,000
Freight 84,000
Total inventoriable cost.............................................................................................. P4,084,000
40 units on hand (40/80 x P4,084,000)...................................................................... P2,042,000
2. Computation of consignment profit:
Consignment sales (40 x P75,000)............................................................................. P3,000,000
Cost of units sold (40/80 x P4,084,000).................................................................... (2,042,000)
Commission charged by consignee
(6% x P3,000,000) ................................................................................................. ( 180,000)
Advertising cost......................................................................................................... ( 20,000)
Installation costs......................................................................................................... ( 32,000)
Profit on consignment sales....................................................................................... P 726,000

3. Remittance of consignee:
Consignment sales..................................................................................................... P3,000,000
Less: Commissions................................................................................................... P180,000
Advertising............................................................................................... 20,000
Installation................................................................................................ 32,000 232,0000
Remittance from consignee........................................................................................ P2,768,000

Problem XI
MG Marty and Athena Duenas Electronics Company
  Inventory on Consignment (800 @ P570) 456,000
     Finished Goods Inventory 456,000

  Consignment Expense (P368,000 x 30%) 110,400

  Accounts Receivable--Consignee Sales 257,600
     Sales Revenue—Consignment (P920 x 400) 368,000

  Cost of Consigned Goods Sold (P570 x 400) 228,000

     Inventory on Consignment 228,000

  Cash [(P920 x 70%) x 380] 244,720

     Accounts Receivable--Consignee Sales 244,720

Ivy Marasigan and Vidal Macasaet Lavadia Hardware

No entry upon receipt of consigned merchandise.

Cash (P920 x 400) 368,000

     Consignor Payable 257,600
     Commission Revenue 110,400

  Consignor Payable 244,720

     Cash 244,720

Multiple Choice Problems

1. b - Number of performance obligations in the contract: 1.
In this case, Jennifer Talosig-Tan is providing a significant service by integrating the goods and services ( the
license and the consulting service) into one combined item for which Jenny has contracted . In addition, the
software is significantly customized by Jennifer Talosig-Tan in accordance with specifications negotiated by
Lopez.

The license and the consulting services are distinct but interdependent, and therefore should be accounted for
as one performance obligation.

2. b - The license and the consulting services are distinct but interdependent, and therefore should be accounted
for as one performance obligation.

3. a - This license gives the theme park the right to access (over time) Anton D’s IP because:
  The theme park can reasonably expect that Anton will undertake activities that will affect the IP (i.e. the
evolution of the characters over time and the introduction of new characters).
 The theme park is exposed to any positive or negative effects of the changes in the characters because it is
required to us the latest images of the characters.
 No good or service is transferred by Anton to the theme park.

The license will be accounted for as a performance obligation satisfied over time. A time-based method is
appropriate for measuring progress towards completion. Anton will recognize revenue of P10 Million each year
for the 10-year term of the license.

4. b - A license will be accounted for as one- performance obligation. A license to access a licensor’s IP is
accounted for as a performance obligation satisfied over time.

5. b - P6,750,000  .85 = P5,737,500.

6. a - The software license is a right of use, since Rhea’s activities during the license period (which for this software
does not have an end date) will not affect the value of the software to Yvette. Therefore, Rhea can recognize the
entire P100,000 upon transfer of the right.

7. a - However, the license to use the Rhea name is an access right, with Rhea’s ongoing activity affecting the
benefit that Yvette receives, so Rhea should recognize revenue as that access is consumed over 36 months. Since
Yvette uses the Rhea name for four months in 20x6 (September through December), Rhea should recognize
revenue of 4 ÷ 36 = 1/9 of $90,000, or P10,000, for that access right in 20x6. In total, Rhea recognizes revenue
of P100,000 + P10,000 = P110,000 in 20x6.

8. d - Yvette uses the Rhea name for four months in 20x6 (September through December), Rhea should recognize
revenue of 4 ÷ 36 = 1/9 of $90,000, or P10,000, for that access right in 20x6. In total, Rhea recognizes revenue
of P100,000 + P10,000 = P110,000 in 20x6.

9. a

10. c- Because the arrangement only has two possible outcomes (regulatory approval is achieved or not), Bai
determines the transaction price based on the most likely approach. Thus, the best measure for the
transaction price is P20,000,000.
11. a
December 20, 20x5
No entry-neither party has performed.

12. b
January 15, 20x6
Cash ......................................................................................10,000,000
License Revenue............................................................................. 10,000,000

13. b - Because the RSGL’s ongoing activities affect the value of the trademark then should recognize revenue
over time. Therefore, the amount of P1,000,000 initial license fee that the RSGL should recognize as revenue
is P250,000 (computed as P1,000,000 ÷ 4 years).

14. b - Normally the RSGL would include an estimate of variable consideration in its estimate of the transaction
price, yielding an estimate of P12 million (computed as P1 million initial fee + P2 million year 1 bonus + (P3
million × 3 years for subsequent-year bonuses). However, the accounting standard does not allow estimates of
sales-based royalties on licenses to be included in the transaction price until that consideration is no longer
variable, so those amounts would be excluded from the transaction price estimated at the inception of the
contract, and the transaction price would only include the P1 million initial fee.
15. c – ReSA FoodGroup concludes that there are two PO’s due to the different locations and time periods. The
transaction price should be allocated between the two licenses.

There is a reasonable expectation that ReSA FoodGroup will undertake activities that will significantly affect
the brand name to which the franchisee has rights, and the franchisee is directly exposed to any positive or
negative effects of that brand and image throughout the franchise period.

Therefore the licenses are rights to access intellectual property, and they are recognized over time. The fact that
the licenses are for a period of three years is not considered in the assessment of whether the fee is recognized
over time or at a point in time.

16. a - The license fee allocated to the right to operate a restaurant using the ReSA FoodGroup brand name in
Manila would be recognized starting from January 1, 20x4, over a period of three years. The license fee
allocated to the license to operate the restaurant in Makati would be recognized, starting from January 1, 20x5,
over a period of three years.

17. (c)
The franchisor has transferred two performance obligations (PO) under the contracts:
1. PO1 - a license of the brand for five years (OT), initial franchise fee of P1,000,000; and
2. PO2 - the material right (PT) to acquire goods, at a 30% discount to the market price. (since there is an agreement
rather than an option, therefore it is a material right)

18. a – refer to No. 17 discussion for PO1

19. b - Rights to the trade name, market area, and proprietary know-how for 5 years are not individually distinct
because each one is not sold separately and cannot be used with other goods or services that are readily
available to the franchisee. In addition, these licensed rights have a close connection with the underlying
Atianzar and Cabalde’s intellectual property (it ability to keep its service and training materials up to date).
Therefore, those combined rights and the ongoing training materials are a single performance obligation.

20. d - Atianzar and Cabalde satisfy the performance obligation over time. That is, once the franchisee begins its
operating a Atianzar and Cabalde franchise, Atianzar and Cabalde is providing access to the rights and must
continue to perform updates and services.
Atianzar and Cabalde Computers cannot recognize revenue for the royalty payments
 Not reasonably assured to be entitled to those revenue-based royalty amounts.
 Payments represent variable consideration.
 Recognize revenue for royalties when (or as) uncertainty is resolved.
As indicated, Atianzar and Cabalde satisfies the performance obligations related to the access to the franchise
rights and training materials over time (on this case, on a straight-line basis) to perform updates and services.
Continuing franchise fees are recognized when uncertainty related to the variable consideration is resolved.
In summary, analysis of the characteristics of the Atianzar and Cabalde franchise indicates that it does not
reflect a right that is transferred at a point in time. That is, Atianzar and Cabalde has a continuing obligation to
provide updated materials and ongoing support, suggesting the control of the right has not been transferred to
the franchisee. Thus, revenue from the franchise rights is recognized over time.

21. a - December 15, 20x7: Franchise agreement signed and receipt of upfront payment and it satisfies the
performance obligations related to the access to the franchise rights and training materials over time:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 975,000
Unearned Franchise revenue. . . . . . . . . . . . . . . . . . . . . . . . 975,000

22. d - December 31, 20x8: Franchise begins operations in January 20x8 and revenue is recognized over time:
Unearned franchise revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . 195,000
Franchise revenue (P975,000/5) . . . . . . . . . . . . . . . . . . . . . . 195,000
Accounts receivable (7% x P16,575,000). . . . . . . . . . . . . . . . . . 1,160,250
 Franchise revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,160,250
Then, the franchise revenue for the year ended December 31, 20x8 to P1,355,250 (P975,000 + P1,160,250)

23. d – the amount of P40,000 Is the nearest answer but the suggested correct answer should be P41,555 (refer to
entry below):

Recognition of Franchise Rights Revenue Over Time

Depending on the economic substance of the rights, the franchisor may be providing access to the right rather
than transferring control of the franchise rights. In this case, the franchise revenue is recognized over time,
rather than at a point in time (November 1, 20x7), therefore, the P41,555 is unearned franchise revenue
while training (as service) and equipment (sales of equipment) are separately classified but not as an unearned
franchise revenue (in contrast to PAS 18)

November 1, 20x4: Date of Opening/Franchise Opens: - Rights to trade name (to record revenue from
delivery of franchise rights – point in time/right of use)
Unearned Franchise Revenue ........................... . . . . . . . . . . 41,555
Franchise revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,555
Cash/down-payment..............................................................P 40,000
PV of Installment payment for two (2) periods:
P30,000 x 1.78326 (PV of an annuity of P1 for 2 periods) 53,498
Total............................................................................................P 93,498
The PV of the elements of revenue of P93,498 should be allocated to:
Rights to trade name: P93,498 x (40,000/90,000)............P 41,555
Training services: P93,498 x (11,500/90,000).................... 11,947
Equipment: P93,498 x (38,500/90,000)............................ 39,996
Total..................................................................................... P 93,498

Franchises often include a license (right of use-point in time), as well as goods and services transferred at
the start of the franchise as well as over the life (right of access-over time) of the franchise.

A license is said to transfer a right of use if the seller’s activities during the license period are not expected to
affect the intellectual property being licensed to the customer. In that case revenue is recognized at the start of
the license period, that is, when the right is transferred.

24. a – nearest amount for unearned service revenue but the suggested correct answer should be P11,947 (refer to
entry below):

Recognition of Franchise Rights Revenue Over Time

Depending on the economic substance of the rights, the franchisor may be providing access to the right rather
than transferring control of the franchise rights. In this case, the franchise revenue is recognized over time,
rather than at a point in time (August 1, 20x8), therefore, the P11,947 is unearned service revenue (note: not
as a unearned franchise revenue in contrast to PAS 18)

August 1, 20x5: Date of Signing:

Cash. ....................................................... . . . . . . . . . . . . . . . . 40,000
Notes receivable (P30,000 x 2)................................................ 60,000
Unearned Interest Income/Discount on Notes Receivable 6,502
Unearned franchise revenue............................................... 41,555
Unearned service revenue – training services..................... 11,947
Unearned sales revenue – equipment................................ 39,996

Cash/down-payment..............................................................P 40,000
PV of Installment payment for two (2) periods:
P30,000 x 1.78326 (PV of an annuity of P1 for 2 periods) 53,498
 Total............................................................................................P 93,498

The PV of the elements of revenue of P93,498 should be allocated to:

Rights to trade name: P93,498 x (40,000/90,000)............P 41,555
Training services: P93,498 x (11,500/90,000).................... 11,947
Equipment: P93,498 x (38,500/90,000)............................ 39,996
Total..................................................................................... P 93,498

Recognition of Franchise Rights Revenue Over Time

Depending on the economic substance of the rights, the franchisor may be providing access to the right (over
time) rather than transferring control of the franchise rights. In this case, the franchise revenue is recognized
over time, rather than at a point in time (August 1, 20x5), therefore, the P11,9470 is unearned service revenue
(note: not as a unearned franchise revenue in contrast to IAS 18)

25. c
Cash = P560,000 + P48,000 = P608,000
Franchise Fee Revenue = P560,000
Unearned Franchise Fees = P48,000 × 20% = P9,600
Revenue from Franchise Fees = P48,000 – P9,600 = P38,400.

26. b - P200,000 + P545,872 – P24,000 (P120,000 – P96,000) = P721,872.

27. a
Total Franchise Fee…………………………………………… P1,600,000
Less: Unearned Interest Income
Amount due (P1,600,000 – P320,000, downpayment) P1,280,000
Less: Present value of payments…………………. 1,014,000 ( 266,000)
Bargain Purchase Option (P60,000-P50,000) – note ( 10,000)
Advertising (P1,000 x 60 months)……………………. ( 60,000)
Revenue from Franchise Fee………………………………. P1,264,000
28. d
Incidentally, the entry would be as follows: (Gross Method)
Cash …………………………………………………………................... 320,000
Notes Receivable........................................................................ 1,280,000
Unearned Interest Income/Discount on Notes Receivable.. 266,000
Revenue from Franchise Fees............................................... 1,264,000
Unearned Franchise Fees (P10,000 + P60,000)..................... 70,000

Incidentally, the entry would be as follows: (Net Method)

Cash …………………………………………………………................... 320,000
Notes Receivable (P1,280,000 – P266,000)................................... 1,014,000
Revenue from Franchise Fees............................................... 1,264,000
Unearned Franchise Fees (P10,000 + P60,000)..................... 70,000

29. c
Because Carlos had completed training and was open for business on August 1, 20x6, Ronella apparently has satisfied its
performance obligation with respect to the initial training, equipment and furnishings, so it would recognize P50,000 of
revenue in 20x6. In addition, since Carlos was a franchisee for the last six months of 20x6 (starting July 1), Ronella should
recognize 6 ÷ 12 = 50% of a yearly fee of P30,000, or P15,000. In total, Ronella recognizes revenue from Carlos of
P50,000 + P15,000 = P65,000 in 20x6.

30. a -
Total amount of franchise agreement P 600,000
Less: stand-alone selling price of training (15,000)
Less: stand-alone selling price of building and equip. __(450,000)
Stand-alone selling price of five-year right P 135,000
31. b - As of July 1, 20x6, Joey Monitor has not fulfilled any of its performance obligations, so the entire P600,000
franchise fee is recorded as deferred revenue.
Cash 75,000
Notes receivable 525,000
Unearned/Deferred revenue 600,000
32. d - On September 1, 20x6, Joey Monitor has satisfied its performance obligations with respect to training and
certifying Perkins and delivering an equipped Joey Monitor building. Therefore, Joey Monitor should
recognize revenue of P15,000 + P450,000 = P465,000 on that date. In addition, by December 31, 20x6, Joey
Monitor has earned 4 months of revenue (September – December) associated with the five-year right it granted
to Althea, so Joey Monitor should recognize revenue of P135,000 × (4 ÷ (5 × 12)) = P9,000 associated with that
right. Total revenue recognized for the year ended December 31, 20x6, is P465,000 + P9,000 = P474,000.

33. d
Revenue = P400,000
Interest income = P160,000 ×8% ×9/12 = P9,600
Cash = P128,000 – P9,600 = P118,400
Repossession revenue: P240,000 – P128,000 = P112,000.

34. b
The revenue from franchise would be:
Cash……………………………………………………………………………………………… P 25,000
PV of Note…………………………………………………………………………..P68,234
Less: Reasonable profit on sale of
Equipment P15,000 – P12,000)………………………………………….… 3,000 65,234
P 90,234
Incidentally, the entries would be:
Upon receipt of IFF:
Cash………………………………………………………………………… 25,000
Notes Receivable………………………………………………………… 90,000
Unearned Interest Income (P90,000 – P68,234)…………. 21,766
Franchise Revenue……………………………………………. 90,234
Unearned Franchise Revenue………………………………. 3,000

35. d
Total Franchise Fee…………………………………………… P 800,000
Less: Unearned Interest Income
Amount due (P800,000 – P160,000 down payment) P 640,000
Less: Present value of payments…………………. 507,200 ( 132,800)
Bargain Purchase Option (P60,000-P50,000)……… ( 10,000)
Advertising (P1,000 x 60 months)……………………. ( 60,000)
Revenue from Franchise Fee………………………………. P 597,200
36. c – refer to No. 37

37. d
Incidentally, the entry in relation to Nos. 35 and 36 would be as follows: (Net Method)
Cash …………………………………………………………................... 160,000
Notes Receivable (P640,000 – P132,800)................................... 507,200
Revenue from Franchise Fees............................................... 597,200
Unearned Franchise Fees (P10,000 + P60,000)..................... 70,000

Incidentally, the entry would be as follows: (Gross Method)

Cash …………………………………………………………................... 160,000
Notes Receivable........................................................................ 640,000
Unearned Interest Income/Discount on Notes Receivable.. 132,800
Revenue from Franchise Fees............................................... 597,200
Unearned Franchise Fees (P10,000 + P60,000)..................... 70,000
38. a
March 20: Date of Signing
Cash 5,000,000
Notes receivable 20,000,000
Unearned franchise fee 25,000,000

39. d
June 15: Date of Operations
Unearned franchise revenue 25,000,000
Franchise revenue (IFF) 25,000,000

40. b
December 15:
Cash 500,000
Service revenue (CFF) 500,000

41. b
In this case, the membership fee arrangement may be viewed as a single performance obligation (similar services are
provided in all periods). That is, Gary, Butch, Charlie and Ronald Health Club is providing a discounted price in the second
and third years for the same services, and this should be reflected in the revenue recognized in those periods. Gary, Butch,
Charlie and Ronald Health Club determines the total transaction price to be P36,000—the upfront fee of P3,600 and the
three years of monthly fees of P32,400 (P500 × 36)—and allocates it over the 3 years. In this case, Gary, Butch, Charlie and
Ronald Health Club would report revenue of P1,000 (P36,000 ÷ 36) each month for 3 years.

42. d – refer to No. 41

43. d (P1,000 per month x 12 months) – refer to No. 41

44. b
A health club enters into a one-year contract with a customer for an unlimited health club access for P150 per month. The
contract requires the customer to pay a non-refundable upfront fee of P240. The upfront fee does not transfer a good or
service to the customer and is, in effect, an advance payment for health club access.

The upfront fee will be recognized as revenue on a straight-line basis throughout the year. As the health club recognizes the
revenue from the contract with customer.

The monthly revenue from the contract with this customer will be P170 [P150 + (1/12 X P240)].

45. c -
The discount coupon provides a material right to the customer that the customer would not receive otherwise (a 20%
discount rather than a 5% discount). This discount coupon is both capable of being distinct, as it could be sold or provided
separately, and it is separately identifiable, as it is not highly interrelated with the other performance obligation of providing
membership access, so this contract has two performance obligations.

46. c -
To allocate the contract price to the performance obligation, we should first consider that the Rink would offer a 5%
discount on P5 meals sold to all customers. So, a 20% discount provides a customer with an incremental value of 15% (20%
- 5%). Thus, the estimated stand-alone selling price of the meal coupons is P60 (= 10 coupons x P50 base price of meal x
15% savings x 80% redeemed). Since the stand-alone selling price of the annual membership fee is P2,000, the Rink would
allocate P58.3 {= P2,000 × [P60 ÷ (P60 + P2,000)]} of the P2,000 transaction price to the discount coupon.

47. No answer available [Membership fee, P1,941.7 and Meal coupons, P58.3 (refer to No. 48)]

48. a -
Since the discount coupon would be a performance obligation, the Rink would recognize deferred revenue for the sale of the
annual membership fee and deferred revenue for the sale of the discount coupon.
Cash P2,000
Deferred revenue, membership fees 1,941.7
Deferred revenue, meal coupons 58.3
49. a -
August 1
Cash 1,200
Deferred revenue 1,200

50. b -
December 31: 5/12 of a year of service has been provided, so AAA should recognize 5/12 × P1,200 = P500 of revenue.
Deferred revenue 500
Sales Revenue 500

51. c -
P500 is included as revenue in the income statement, and P700 is included in current liability section of the balance sheet.

52. c – P1,200
Commission = 25% x Sales price
P400 = 25% x Sales price
Sales price = P400 ÷ 25% = P1,600

Number of units sold = Selling price = __P1,600__ = 8 tapes

Price per tape P200 per tape

Sales ……………………………………………………………….. P1,600

Less Commission of consignee………………………………... 400
Amount remitted by Beta View Store………………………...P1,200

53. a – P 370

Charges Related to
Total Consignment Inventory on
Charges Sales Consignment
(25) (8) (15)
Consignor’s charges:
Cost P2,500 P800 P1,500
Freight-out 75 30 45
Consignee’s charge - Commission __400__ __400__ _______
Total P2,975 1,230 _P1,545_
Sales price _1,600_
Consignment profit _P370_

54. c – P1,545 (refer to No. 53 for computation)

55. c - (15 x P850)  (P12,750  .06)  P300  P390 = P11,295.

56. c - P11,295  (15  P350) = P6,045.

57. b
Sales (P2,250 / 15%) P15,000
Divided by: Selling price per unit P 1,000
Number of units sold 15 units

58. c
Sales P15,000
Less Charges:
Commission P 2,250
 Advertising 1,500
Delivery expense ___750 __4,500
Due to Consignor P10,500
Less: Advances
Value of note – sight draft: (100 beds x P600 per bed) x 60% P36,000
Multiplied by: Proportional number of beds sold 15/100 __5,400
Amount remitted P 5,100

59. d – P1,500
Sales P15,000
Less Charges:
Consignor’s charge:
Cost of beds (P600 per bed x 15 beds) 9,000
Consignee’s charges:
Commission P2,250
Advertising 1,500
Delivery expense ___750 __4,500
Consignment net income P1,500

60. a – no items were sold in November ;

Sales (unknown) P x
Less Charges:
Commission 15% x
Remittance P 27,200

x – 15%x = P27,200
85%x = P27,200
x = P32,000

61. c – P16,800
Sales (unknown) x
Less Charges:
Advertising P500
Delivery and installation charges 100
Commission (unknown) 20%x _______
Remittance P 12,840

x – (P500 + P100 + 20%x) = P 12,840

x – 20%x = P12,840 + P600
80%x = P13,440
x = P16,800

62. b- P6,080
Cost (P150 per unit x 40 units) P6,000
Freight on shipment (P200 x 40/100) 80
Cost of inventory on consignment P6,080

63. c - 6
Sales (unknown) x
Less Charges:
Commission (unknown) 20%x
Advertising P1,000
Delivery and installation 600
 Cartage on consigned goods 500
Remittance P21,900

x – (20%x + P1,000 + P600 + P500) = P21,900

x – 20%x = P21,900 + P2,100
80%x = P24,000
x = P30,000

Number of units sold = _P30,000_ =6

P5,000 per set

64. a – P2,300
Charges Related to
Total Consignment Inventory on
Charges Sales Consignment
(10) (6) (3)
Consignor’s charges:
Cost P30,000 P18,000 P9,000
Freight-out 2,500 1,750 750
Consignee’s charges:
Commission (20% x P30,000) 6,000 6,000
Advertising 1,000 1,000
Delivery and installation 600 600
Cartage __500__ __350__ __150__
Total P40,600 27,700 _P9,900_
Sales price _30,000_
Profit on Consignment __P2,300__

65. d – None of the above (P9,900) – refer to No. 64 for computation.

66. d - P17,625
Sales – (Sales x 20%) – P600 – P390 – P210 = P12,900
.8 Sales = P14,100
Sales = P17,625.

67. a (P270 x 50) + [(P600 ÷ 80) x 50] = P13,875.

68. a
Gross collection (P15,000 x 70% x 80%) P 8,400
Less: Cash discount taken by customer (P8,400 x 2%) __168
Net collection P 8,232
Less Charges:
Expenses P 800
Commission (P8,400 x 15%) _1,260 __2,060
Due to Consignor P 6,172
Less: Advances _6,000
Amount remitted P 172
69. b
Charges Related to
Total Consignment Inventory on
Charges Sales Consignment
(100%) (70%) (30%)
Consignor’s charges:
Cost P10,000 P 7,000 P 3,000
 Freight 120 84 36
Consignee’s charges:
Expenses 800 800
Commission (15% x P10,500) 1,575 1,575
Cash discount (P10,500 x 80% x 2%) 168 168
Total P12,663 P 9,627 P3,036_
Sales price (70% x P15,000) _10,500_
Profit on Consignment P 873

70. b – refer to No. 69 for computation

71. c
Collection made pertaining to:
May sale
Down payment (3 x P50) P 150
Monthly payment thereafter (3 x P10) 30 P 180
June sale
Down payment (1 x P50) ___50
Total P 230
Less: Commission (P230 x 20%) ___46
Amount remitted P 184

72. d – P140
Charges Related to
Total Consignment Sales Inventory on
Charges (4) Consignment
(5) (1
Consignor’s charges:
Cost P 775 P 620 P 155
Freight 50 40 10
Consignee’s charges:
Commission 200 200 ____
Total P1,025 P 860 P165
Sales price (4 units x P250/unit) _ 1,000
Profit on Consignment P 140

73. b – refer to No. 72 for computation

74. b
Collection made:
Cash sale (P1,500 x 2) P 3,000
Credit sale (P1,800 x 25%) ___450
Total P3,450
Less: Charges
Freight P 320
Commission [(P3,000 + P1,800) x 15%] __720 __1,040
Amount remitted P 2,410

75. a
Charges Related to
Total Consignment Sales Inventory on
Charges (3) Consignment
(5) (2)
Consignor’s charges:
Cost P4,000 P 2,400 P 1,600
Freight 200 120 80
 Consignee’s charges:
Freight 320 192 128
Commission 720 720 ______
Total P5,240 P 3,432 P1,808
Sales price 4,800
Profit on Consignment P 1,368

76. b – P1,808 – refer to No. 75 for computation

77. d – P244,600
Sales on credit (14,000 per unit x 12 units) + (13,000 x 10) P298,000
Less: Sales allowance granted P 2,000
Bad debts 7,000
Commission [2% x (P298,000 – P2,000)] _44,400 __53,400
Amount still due from BB, Inc P 244,600

78. d – P67,280
Charges Related to
Total Consignment Inventory on
Charges Sales Consignment
(30) (22) (8)
Consignor’s charges:
Cost P240,000 P176,000 P64,000
Freight-out 1,800 1,320 480
Consignee’s charges:
Sales allowance 2,000 2,000
Bad debts 7,000 7,000
Commission
[15% x (P298,000 – P2,000)] 44,400 44,400
Total P295,200 P230,720 _P64,480_
Sales price [P14,000 per unit x 12 units)
+ (P13,000 per unit x 10 units)] 298,000
Consignment profit P 67,280

79. d – P64,480; refer to No. 78 for computation

80. b
Sales (unknown) x
Less Charges:
Commission (unknown)
( )
__x__ P10
P100
Delivery expense __P45__ ________
Remittance P35,505
x- [( _x__ ) P10 + P45 ] = P35,505
100

x – _P10x_ = P35,550
P100
P100x – P10x = P3,555,000
P90x = P3,555,000
x = P39,500
Number of ball pens sold = _P39,500_ = P395
P100 per unit
81. b
65 × P20 = P1,300. Berry Farm has a consignment arrangement with Bay Farmers’ Market, so it should not recognize
transfer of 100 boxes of strawberries as sales. Although the market has physical possession of the asset for the sales period,
Berry Farm retains legal title to the asset as well as the risks and rewards of ownership for the goods placed on consignment.

82. c
100 × P75 = P7,500. Holmgren Seafoods, Inc. has transferred control of the salmon to Joe’s Fish Shop, because Joe’s holds
the risks and rewards of ownership. If a fish is unsold, Joe’s must pay for it, so Holmgren is guaranteed to receive payment
for all 100 fish. Therefore, Holmgren would view its transfer of fish to Joes’ as a sale rather than as a consignment
arrangement.

83. b
Consignment
Regular Sales Sales Total
Sales P120,000 P30,000 P150,000
Cost of sales 84,000 19,500* 103,500
Gross profit P 36,000 P10,500 P 46,500
Operating expenses:
Commission (P30,000 x 5%) P 1,500 P 1,500
Freight-in (P260 x P19,500*/P26,000) 1,950 1,950
Others
Regular (P15,150 x P19,500/P26,000) 12,120
Consignment
(P15,150 x P30,000/P150,000) _______ 3,030 3,030
Total P 12,120 P 4,725 _P16,845_
Net profit P 23,880 P 5,775 P29,655
*P26,000 – P6,500 = P19,500

84. d – P5,775 (refer to No. 83 for computation)

85. a – (P18,000 + P900) = P18,900

THEORIES
1. d 6. d 11. a 16. b 21. d 26. d 31. c
2. b 7. c 12. b 17. a 22. a 27. d 32. a
3. a&b 8. d 13. b 18. d 23. c 28. c 33. c
4. d 9. b 14. d 19. b 24. a 29. d
5. a 10. b 15. a 20. d 25. b 30. d

2. A vendor grants a franchise license to a customer, which provides the right to use the vendor’s trade name and sell its products for a period
of 10 years. During this period, the vendor will undertake activities that will affect the franchise license, including analyzing changes in
customer preferences, implementing product improvements and undertaking marketing campaigns. The nature of the vendor’s promise to its
customer is to provide access to the vendor’s intellectual property in its form as it exists throughout the license period, and not only as it
exists at the start of the license period. Consequently, the performance obligation is satisfied over time.

3. A vendor (a music record label) licenses a specified recording of a Beethoven symphony to a customer for a period of two years. The
customer has the right to use the recording in all types of advertising campaigns (including television, radio and online media) in a specified
country. The contract is non-cancellable and the customer is required to pay P10,000 per month. The nature of the vendor’s promise to its
customer is to provide access (overtime) to the recording in its condition as at the start of the license period. Consequently, the customer’s
rights to the intellectual property are static and the vendor’s performance obligation is satisfied at a point in time. The vendor recognizes all
of the revenue (adjusted for a significant financing component, if appropriate) at the point at which the customer is able to use, and obtain
substantially all the benefits, of the licensed intellectual property.

14. Tele Performance would allocate the initial franchise fee to three separate performance obligations based on their relative stand-alone
prices:
1. the right to operate a Teletech,
 2. equipment, and
3. training.

15. Tele Performance would recognize revenue for the right to operate a Teletech over the five-year license period; because Tele
Performance’s ongoing activities over the license period affect the value of the right to run a Teletech.

16. Tele Performance would recognize revenue for the equipment at the time the equipment is delivered to the franchisee

17. Would recognize revenue for the training over the two-year period that the training is provided.

Additional Notes for Nos. 14-17: What if Tele Performance also charges franchisees an additional fee for ongoing services provided by
Tele Performance? In that case, Tele Performance would recognize revenue associated with that fee over time as it provides the ongoing
services.

19. Number of performance obligations in the contract: 1. Access to Escape services is one performance obligation. Registration on the website
is not a performance obligation, but rather is part of the activity Escape must provide to satisfy its performance obligation of providing
access to Escape’s on-line services. The P50 payment is an upfront payment that is part of the total transaction price associated with the
service, and the monthly payments are the other component.

31. Consignment arrangements normally do not qualify for revenue recognition until delivery is made to the end customer. Prior to that point,
control of goods is viewed as having been retained by the consignor, not by the consignee.

32. Consignment arrangements normally do not qualify for revenue recognition until delivery is made to the end customer. Prior to that point,
control of goods is viewed as having been retained by the consignor, not by the consignee, so the consignor retains the goods in the
consignor’s inventory. In this case, that means that Sweeney will retain the painting in its inventory until the painting is sold to an end
customer.

33. Consignment arrangements normally do not qualify for revenue recognition until delivery is made to the end customer. Prior to that point,
control of goods is viewed as having been retained by the consignor, not by the consignee.