PFRS 15 Sale of Goods/ Accrual, Franchise and Installment Sales

1. The entity recognizes revenue at a “point in time” rather than “over time” under which
of the following situations?
a. The customer simultaneously receives and consumes all of the benefits provided
by the entity as the entity performs.
b. The customer has the significant risks and rewards related to the ownership of the
asset.
c. The entity’s performance does not create an asset with an alternative use to the
entity and the entity has an enforceable right to payment for performance
completed to date.
d. The entity’s performance creates or enhances an asset that the customer controls
as the asset is created.

2. Which of the following is not true about contract liabilities?

a. Contract liabilities are only recognized when the seller has a conditional right to
receive payment.
b. Contract liabilities might be called deferred revenue.
c. Contract liabilities are recognized when the seller has been paid in advance of
satisfying its performance obligations.
d. Contract liabilities may be shown on a separate line of the balance sheet.

3. Which of the following is an exception for application of PFRS 15?

a. Installment sales contracts
b. Pharmaceutical contracts
c. Insurance contracts
d. Financial audit contracts

4. The fourth step in the process of revenue recognition is to

a. Determine the transaction price.
b. Identify the separate performance obligations in the contract.
c. Allocate transaction price to the separate performance obligations.
d. Recognize revenue when each performance obligation is satisfied.

5. Under PFRS 15 – Revenue from Contacts with Customers, an entity should disclose
qualitative and quantitative information about all of the following except:
a. Contract with customers
b. Major events affecting the contract with customers
c. Significant judgements made in applying guidance to contracts
d. Asset recognized to fulfill contract with customer

6. Objective of PFRS 15 is to:

 a. Improve the relevance, reliability and comparability of the information that a
reporting entity provides in its financial statements about its revenue from contracts
with customers and its effects.
b. Prescribe the principles for recognition and measurement of transactions involving
contracts with customers.
c. Establish principles for the presentation and preparation of financial statements
when an entity transacts with one or more customers.
d. Establish the principles that an entity shall apply to report useful information to
users of financial statements about the nature, amount, timing and uncertainty of
revenue and cash flows arising from a contract with a customer.

7. On April 28, 2023, a customer contracted to have two products built by AFAR Company
for a total price of P200,000. The contract specifies that payment will only occur after
both products have been transferred to the customer. AFAR determines that the
standalone prices are P40,000 for Product 1 and P60,000 for Product 2. On May 02,
2023, Product 1 has been transferred to the customer. The journal entry on May 02,
2023 will include:
a. debit to Accounts Receivable for P40,000
b. debit to Contract Assets for P80,000
c. debit to Accounts Receivable for P80,000
d. debit to Contract Assets for P40,000

8. Which of the following is not true about contract assets?

a. Contract assets are recorded when payment depends on something other than the
passage of time.
b. Contract assets are recognized when the seller has a conditional right to receive
payment.
c. Contract assets are recognized when the seller has been paid in advance for at
least partially fulfilling its performance obligations.
d. Contract assets are not the same as accounts receivable.

9. Unconditional rights to receive consideration because a performance obligation has

been satisfied are:
a. reported as a receivable on the statement of financial position.
b. reported as a contract asset on the statement of financial position.
c. reported as a contract liability on the statement of financial position.
d. are not reported on the balance sheet.

10. On January 02, 2023, AFAR Company enters into a contract with a customer to build
an item of specialized equipment, for delivery on April 30, 2023. However, the exact
delivery date is hard to estimate. The amount of consideration specified in the contract
is P300,000, but that amount will be decreased or increased by P500 for each day,
 depending on whether the actual delivery date is before or after April 30, 2023. How
should AFAR determine a transaction price for this contract?
a. AFAR needs to apply the most likely amount method in order to predict the amount
of consideration, because there is a range of possible outcomes.
b. The transaction price may only be calculated when the equipment is delivered and
exact amount of consideration is known.
c. AFAR needs to apply expected value method in order to predict the amount of
consideration, because there is a range of possible outcomes.
d. The transaction price for this contract should be the same as specified in the
contract with a customer, which is P300,000.

11. Revenue recognition under PFRS 15 is based on:

a. Transfer of title
b. Transfer of control
c. Payment of consideration
d. Transfer of risk and rewards of ownership

12. Transaction price of the contract

a. Excludes the time value of money if the contract involves significant financing
component
b. Excludes discounts, rebates and coupons
c. Excludes non cash consideration such as donation, equipment and labor
d. Is the amount of consideration that a company expects to receive from a customer.

13. According to PFRS 15, the asset is transferred to a customer:

a. When the customers obtain control over it.
b. When the asset is physically delivered to the customer’s premises.
c. On the day specified by a contract with the customer.
d. On the day when the entity satisfies all performance obligations, specified in the
contract with the customer.

14. What is the key factor in identifying a separate performance obligation?

a. The passing of the risks and rewards to the customers
b. The identification of the payment terms
c. The enforceability of the contract
d. The distinctiveness of the good or service

15. The transaction price for multiple performance obligations should be allocated:
a. based on selling price from the company’s competitors
b. based on forecasted cost of satisfying performance obligation
c. based on total transaction price less residual value
d. based on what the company could sell the goods for on a stand-alone basis.
16. Under PFRS 15, how shall revenue from contracts with customers such as revenue
from initial franchise fee be recognized by the franchisor?
a. Upon receipt of the initial franchise free by the franchisor
b. Upon signing of the franchise agreement
c. When the franchisor satisfies the performance obligation under the franchise
agreement
d. Applying the legality over the substance of the transaction

17. PFRS 15 provides that initial franchise fee shall be recognized as revenue over time if
any one of the following criteria provided below is met. Which of the following indicator
shows that the initial franchise fee shall be recognized as revenue at a point in time
instead over time?
a. When the franchisor's performance does not create an asset with alternative use to
the franchisor and the franchisor has an enforceable right to payment for performance
completed to date.
b. When the franchisee has a legal title and has the significant risks and rewards of
ownership of the franchise.
c. When the franchisee simultaneously receives and consumes the benefits provided
by the franchisor's performance as the franchisor performs.
d. When the franchisor's performance creates or enhances an asset that the
franchisee controls as theasset is created or enhanced.

18. For Installment Sales, if the expected period between the transfer of promised good or
service to a customer and date of payment is less than one year, an entity need not
adjust the transaction price for a significant financing component.
a. The statement is correct.
b. The statement is incorrect.

19. HONESTY Company sells new automobiles. A new Escapade costing P700,000 was
sold on October 1, 2022 for P1,218,000; a 2020 Toyota Revo was accepted as down
payment and an allowance of P300,000 was accepted on the agreed trade in. The
balance was payable in 12 equal quarterly installments of P76,500 starting December
31, 2022. HONESTY anticipates selling price on reconditioned automobile of P350,000
after reconditioning it for P50,000. Selling costs equal to 5% of selling price is also
anticipated. The gross profit for reconditioned automobiles is expected to be 20%. The
market rate of interest is 12% and the company uses IFRS 15 for this transaction.
(Round off PV factor to 4 decimal places)

How much is the total amount credited to Installment Sales? ______________

20. Using the same information, how much is the interest revenue to be recognized in
2023? ______________
 21. On December 1, 2022, AFAR Company delivered 100 units of cellular phones to its
customers under sale or return arrangement at a cash price of P10,000 per unit with
production cost of P8,000 per unit. The arrangement allows the customer to return the
cellular phones up to February 28, 2023. The customers paid the price on December 1,
2022. Based on the historical data available, AFAR estimated that 40% units sold
under sale or return are returned by the customer within the period. As of December
31, 2022, none of the cellular phones were returned by the customers. From January
1, 2023 up to February 28, 2023, 30 units of cellular phones were returned by the
customers, and duly acknowledged and accepted by AFAR. How much is the revenue
to be recognized by AFAR in 2022? _______________

22. On June 01, 2022, HONESTY Company sold equipment to a customer in exchange for
a zero-interest bearing note with a face value of P55,000, with payment due in 12
months. The fair value of the equipment on the date of sale was P50,000. How much is
the amount of revenue to be recognized in 2022? ___________

23. On July 01, 2022, Emerald Corporation sold a set of washing machine and a dryer for
a total contract price of P200,000. The stand alone selling prices of the washing
machine and the dryer if sold separately are: 150,000 and 70,000, respectively. A 20%
down payment was made and the balance is payable in six (6) equal installment
payments of P28,564, inclusive of 2% interest, payable quarterly starting September
30 and December 31, 2022. How much is the revenue to be recognized on this
contract on July 01, 2022? ____________

24. Using the same information, how much is the total amount of interest earned in 2022?
__________

Chery Company sells new automobiles. A new model costing P700,000 was sold on October
1, 2022 for P1,218,000; a 2018 model was accepted as down payment and an allowance of
P300,000 was accepted on the agreed trade in. The balance was payable in 36 equal
monthly installments of P25,500 starting October 31, 2022. Cherry Company anticipates
selling price on reconditioned automobile at P350,000. Reconditioning cost amounted to
P50,000. Selling costs of 5% based on selling price is also anticipated. The gross profit for
reconditioned automobiles is expected to be 20%. (The market rate of interest is 12%. PV
factor is 30.11)

29. How much is the gross profit on installment sales in 2022? ______________

30. How much is the Interest Revenue to be recognized in 2022? ______________

On January 1, 2023, Cream Company sold merchandise costing P150,000 to Ally, who issued
a non-interest- bearing note in the amount of P250,000, payable in 5 equal semi-annual
installments of P50,000 starting June 30, 2023. The prevailing interest rate is 12%. (Round off
present value factor to three decimal places).

31. How much is the realized gross profit in the company’s December 31, 2023 Financial
Statements?
__________________

On January 1, 2023, Honesty Company, a telecommunications company, entered into a

contract with Integrity Company. Integrity Company subscribes for Honesty Company’s
monthly pan for 24 months and in return, Integrity Company receives a free mobile phone.
Integrity Company will pay a monthly fee of P1,000, and it
gets the mobile phone immediately after signing the contract. Honesty sells the same mobile
phone for P15,000 and the same monthly plans for P500 without the mobile phone.

32. Determine the total amount of revenue to be recognized for the year ended December 31,
2023.
____________

On July 1, 2022, Robinson, Inc. authorized Puregold to operate as a franchisee for an initial
franchise fee of
P1,500,000. Of this amount, 40% was received upon contract signing and the balance,
represented by a note, is due in three semi-annual installments starting December 31, 2022.
The market rate of interest is 12%. (Round off present value factor to three decimal places.)

40. How much is the contract liability on July 1, 2022?

____________________

A customer signed an agreement to operate as a franchisee of BULACAN Company on

January 5, 2022. The contract calls for an initial franchise fee of P2,000,000 for a period of 10
years. Cash of P750,000 was paid to BULACAN at the date the contract was signed. The
balance was agreed to be payable in ten semi-annual installments beginning June 30, 2022,
covered by a non-interest-bearing note. By November 17, 2022, the initial services required
were substantially performed and the franchisee has started operations on December 21,
2022. The market rate of interest is 16%. (Round off the PV factor to two decimal places.)

41. How much is the Interest Revenue in 2022?

________________

Honesty Company entered into a four (4) year franchise agreement with a customer on July
1, 2022. The initial
franchise fee agreed upon is P5,950,000, of which P1,050,000 is payable upon signing and
the balance to be covered by a non-interest-bearing note payable in four equal annual
installments. It was agreed that the down
payment is not refundable. In addition to the initial franchise fee, it was also agreed that the
franchisee will pay continuing franchise fee equivalent to 5% of sales. The following costs
were incurred by Honesty: Direct cost: Initial services - P1,645,000 and continuing services -
P167,300. Indirect cost: Initial services - P448,000 and Continuing services – P63,000. The
franchise started its operation on October 1, 2022. The franchisee reported average monthly
sales of P500,000. The management of the franchisee has estimated that they can borrow
loan at the rate of 12%. (Round off the PV factor to four decimal places.)

42. Assuming that the franchisee is given the right to use the entity’s intellectual property, how
much is
the Total Revenue to be recognized in 2022?
_______________

43. Assuming that the franchisee is given the right to access the entity’s intellectual property,
how much is the total revenue to be recognized in 2022? ______________