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Since 1977
FAR
FAR.3317-Trade and Other Receivables
DISCUSSION PROBLEMS
1. Receivables are financial assets because they are
a. Cash equivalents.
b. Equity instruments of another entity.
c. Contractual rights to receive cash or another
financial asset from another entity.
d. Contractual rights to exchange financial assets or
financial liabilities with another entity under
conditions that are potentially favorable to the
entity.
2. Which statement is incorrect regarding PFRS 15?
a. The standard outlines a single comprehensive
model for entities to use in accounting for revenue
arising from contracts with customers.
b. The standard supersedes revenue recognition
guidance in PAS 18 Revenue and PAS 11
Construction Contracts and related interpretations.
c. The core principle is that an entity recognizes
revenue to depict the transfer of promised goods
or services to customers in an amount that reflects
the consideration to which the entity expects to be
entitled in exchange for those goods or services.
d. None, all the statements are correct.
3. Arrange in proper sequence the five-step approach
that entities will follow in recognizing revenue in
accordance with PFRS 15:
I. Determine the transaction price
II. Identify the contract(s) with the customer
III. Identify the separate performance obligations in
the contract
IV. Recognize revenue when (or as) each performance
obligation is satisfied
V. Allocate the transaction price to separate
performance obligations
a. I, II, III, IV and V c. III, II, I, V and IV
b. II, III, I, V and IV d. II, III, V, I and IV
4. For PFRS 15 to apply, a contract with a customer
should meet which of the following conditions?
I. The contract has been approved by the parties to
the contract and are committed to perform their
respective obligations.
II. Each party’s rights in relation to the goods or
services to be transferred can be identified.
III. The payment terms for the goods or services to
be transferred can be identified.
IV. The contract has commercial substance.
V. It is probable that the consideration to which the
entity is entitled to in exchange for the goods or
services will be collected.
a. I, II, III, IV and V c. I, II, III and V
b. I, III, IV and V d. I, II, III and IV
5. Performance obligation is a promise in a contract with
a customer to transfer to the customer
a. A good or service (or a bundle of goods or
services) that is distinct.
b. A series of distinct goods or services that are
substantially the same and that have the same
pattern of transfer to the customer.
c. Either a or b.
d. Neither a nor b.
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OCAMPO/OCAMPO
OCTOBER 2022
6. Which statement is incorrect regarding transaction
price in accordance with PFRS 15?
a. Transaction price is the amount of consideration to
which an entity expects to be entitled in exchange
for transferring promised goods or services to a
customer, excluding amounts collected on behalf of
third parties.
b. An entity shall consider the terms of the contract
and its customary business practices to determine
the transaction price.
c. The nature, timing and amount of consideration
promised by a customer affect the estimate of the
transaction price.
d. The consideration promised in a contract with a
customer may include fixed amounts but not
variable amounts.
7. When determining the transaction price, an entity shall
consider the effects of:
I. Variable consideration
II. Constraining estimates of variable consideration
III. The existence of a significant financing
component in the contract
IV. Non-cash consideration
V. Consideration payable to a customer
a. I, II, III, IV and V c. III, IV and V only
b. II, III, IV and V only d. III and IV only
8. For the purpose of determining the transaction price,
an entity shall assume
a. That the goods or services will be transferred to
the customer as promised in accordance with the
existing contract.
b. That the contract may be cancelled.
c. That the contract may be renewed
d. That the contract may be modified.
9. Where a contract has multiple performance obligations,
an entity will allocate the transaction price to the
performance obligations in the contract by reference to
their relative
a. Standalone selling prices.
b. Fair values.
c. Net realizable values.
d. Any of the above.
10. Which statement is incorrect regarding recognition of
revenue?
a. Revenue is recognized as control is passed, either
over time or at a point in time.
b. Control of an asset is defined as the ability to
direct the use of and obtain substantially all of the
remaining benefits from the asset.
c. Control includes the ability to prevent others from
directing the use of and obtaining the benefits from
the asset.
d. The benefits related to the asset are the potential
cash flows that may be obtained only directly.
FAR.3317
EXCEL PROFESSIONAL SERVICES, INC.

11. At initial recognition, an entity shall measure trade Promissory notes received in payment
receivables at their transaction price (as defined in of accounts receivable 2,000,000
PFRS 15) if the trade receivables Accounts receivable written off as
a. Do not contain a significant financing component in uncollectible 160,000
accordance with PFRS 15. Collections on accounts previously
b. When the entity applies the practical expedient in written off 60,000
accordance with paragraph 63 of PFRS 15. Accounts receivable used as collateral 1,000,000
c. Either a or b.
The entity’s accounts receivable balance at the end of
d. Neither a nor b.
the period is
a. P6,060,000 c. P3,060,000
12. Receivables not measured initially at their transaction
b. P4,060,000 d. P3,000,000
price are measured initially at
a. Fair value
18. On June 9, Seller Corp. sold merchandise with a list
b. Fair value less costs to sell
price of P5,000 to Buyer on account. Seller allowed
c. Fair value minus transaction costs that are directly
trade discounts of 30% and 20%. Credit terms were
attributable to the acquisition of the financial
2/15, n/40 and the sale was made FOB shipping point.
asset.
Seller prepaid P200 of delivery costs for Buyer as an
d. Fair value plus transaction costs that are directly
accommodation. On June 25, Seller received from
attributable to the acquisition of the financial
Buyer a remittance in full payment amounting to
asset.
a. P2,744 c. P2,944
b. P2,940 d. P3,000
13. In accordance with PFRS 9, receivables shall be
measured at amortized cost if
a. The receivables are held within a business model
LECTURE NOTES:
whose objective is to hold assets in order to collect
contractual cash flows. Accounting for Freight
b. The contractual terms of the receivables give rise
on specified dates to cash flows that are solely Who should pay? Who actually paid?
payments of principal and interest on the principal
amount outstanding. Buyer FOB shipping point Freight collect
c. Both a and b.
Seller FOB destination Freight prepaid
d. Either a or b.
Deduct FOB destination Freight collect
14. The ideal measure of short-term receivables in the from AR
statement of financial position is the discounted value
of the cash to be received in the future, failure to Add to AR FOB shipping point Freight prepaid
follow this practice usually does not make the
statement of financial position misleading because Gross and Net method of recording Sales
a. The amount of the discount is not material.
b. Most short-term receivables are not interest Gross Net
bearing.
c. The allowance for uncollectible accounts includes a Cash Deducted from Deducted from
discount element. discounts sales when granted sales whether
d. Most receivables can be sold to a bank or factor. granted or not

15. Accounts receivable are normally reported at the: Cash Deducted from Not accounted for
discounts sales (sales separately since
a. Present value of future cash receipts.
granted discounts) already deducted
b. Current value plus accrued interest.
from sales
c. Expected amount to be received.
d. Current value less expected collection costs. Cash Included in sales Reported as other
discounts income
16. New Corp has the following data relating to accounts not (Forfeited sales
receivable at the end of the current year: granted discounts)
Accounts receivable P1,880,000
Allowance for doubtful accounts 94,000
Allowance for sales discounts 10,000 19. The Pacifier Company uses the net price method of
Allowance for sales returns 15,000 accounting for cash discounts. In one of its
Allowance for freight 3,000 transactions on December 15, Pacifier sold
What is the net realizable value of New Corp.’s merchandise with a list price of P500,000 to a client
accounts receivable? who was given a trade discount of 20% and 15%.
a. P2,708,000 c. P1,758,000 Credit terms were 2/10, n/30. The goods were
b. P1,880,000 d. P1,752,000 shipped FOB destination, freight collect. On December
20, the client returned damaged goods originally billed
17. The following information pertains to an entity’s at P60,000. Total freight charges paid by the buyer
accounts receivable: amounted to P7,500. What is the net realizable value
of this receivable on December 31?
Accounts receivable, beginning P 3,800,000
a. P272,500 c. P280,000
Credit sales 18,000,000 b. P274,400 d. P333,200
Sales returns 280,000
Collections 15,300,000

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EXCEL PROFESSIONAL SERVICES, INC.
20. An advantage of using the net price method of
recording cash discounts on credit sales is
a. It simplifies recording of sales returns and
allowances.
b. It eases communication with customers about their
balances.
c. It requires less record-keeping efforts than the
gross method.
d. It properly reflects current period sales revenue.
21. In accordance with PFRS 15, how should volume
rebates and/or discounts on goods or services applied
retrospectively be accounted for?
a. As variable consideration.
b. As customer options to acquire additional goods or
services at a discount.
c. Either a or b.
d. Neither a nor b.
22. In accordance with PFRS 15, how are variable
considerations accounted for?
a. Included in transaction price.
b. Included in the transaction price only to the extent
that it is highly probable that a significant reversal
in the amount of cumulative revenue recognized
will occur when the uncertainty associated with the
variable consideration is subsequently resolved.
c. Included in the transaction price only to the extent
that it is highly probable that a significant reversal
in the amount of cumulative revenue recognized
will not occur when the uncertainty associated with
the variable consideration is subsequently
resolved.
d. Excluded from transaction price.
23. To account for the transfer of products with a right of
return (and for some services that are provided
subject to a refund), an entity shall recognize
a. Revenue for the transferred products in the
amount of consideration to which the entity
expects to be entitled (therefore, revenue would
not be recognized for the products expected to be
returned).
b. A refund liability.
c. An asset (and corresponding adjustment to cost of
sales) for its right to recover products from
customers on settling the refund liability.
d. All of these.
24. Which statement is incorrect regarding a refund
liability?
a. An entity shall recognize a refund liability if the
entity receives consideration from a customer and
expects to refund some or all of that consideration
to the customer.
b. A refund liability is measured at the amount of
consideration received (or receivable) for which the
entity does not expect to be entitled.
c. The refund liability shall be updated at the end of
each reporting period for changes in
circumstances.
d. Changes in refund liability shall be recognized as
other income or expense.
25. Which statement is incorrect regarding an asset
recognized for an entity’s right to recover products
from a customer on settling a refund liability?
a. It shall initially be measured by reference to the
former carrying amount of the product (for
example, inventory) less any expected costs to
recover those products (including potential
decreases in the value to the entity of returned
products).
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b. At the end of each reporting period, an entity shall
update the measurement of the asset arising from
changes in expectations about products to be
returned.
c. An entity shall offset the asset and the refund
liability.
d. None, all the statements are correct.
26. Ely Corp. sold merchandise to various customers with
a list price of P1,000,000. The customers were given
trade discounts of 20% and 15%. Credit terms were
2/10, n/30. Based on experience, Ely expects that
50% will avail of the cash discounts and 10% will
return the products. In accordance with PFRS 15, Ely
should recognize revenue of
a. P680,000 c. P605,200
b. P673,200 d. P598,400
27. Seller Corporation sold P21,000 of merchandise during
the month of December, which was charged to a
national credit card. On December 15, Seller bills the
independent national credit card company for these
sales and is assessed a 5% service charge. On
December 21, a customer returned merchandise
originally sold for P2,000 and Seller notifies the credit
card company of the return. On December 29, the
credit card company remitted amount owed to Seller.
Which statement is incorrect?
a. In recording this sale, Seller should record an
account receivable from the credit card company.
b. Seller received P18,050 from the credit card
company.
c. Seller should recognize P18,050 as net revenue.
d. None, all the statements are correct.
28. Bangui Company provides for doubtful accounts
expense at the rate of 3 percent of credit sales. The
following data are available for the current year:
Allow. for Doubtful Accounts, Jan. 1 P 54,000
Accounts written off as uncollectible 60,000
Collection of accounts written off 15,000
Credit sales, year-ended December 31 3,000,000
The allowance for doubtful accounts balance at
December 31, after adjusting entries, should be
a. P45,000 c. P90,000
b. P84,000 d. P99,000
LECTURE NOTES:
Direct write-off vs Allowance method
Accounting for doubtful accounts – Allowance method
Profit or loss approach
• % of sales
FOCUS: Doubtful accounts expense (Matching)
SFP approach
• % of accounts receivable
• Aging
FOCUS: Allowance for doubtful accounts (NRV of AR)
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EXCEL PROFESSIONAL SERVICES, INC.

29. What is the effect on net income at the time of the The estimated bad debt rates below are based on the
collection of an account previously written off under Corporation’s receivable collection experience.
each of the following methods? Age of accounts Rate
Direct write-off Allowance method 0 – 30 days 1%
a. No effect Increase 31 – 60 days 1.5%
b. Increase Increase 61 – 90 days 3%
c. Increase No effect 91 – 120 days 10%
d. No effect No effect Over 120 days 50%
The Allowance for Doubtful Accounts had a credit
30. On Jan. 1, 2022, the balance of accounts receivable of
balance of P14,000 on Dec. 31, 2022, before
Burgos Corp. was P5,000,000 and the allowance for
adjustment.
doubtful accounts on same date was P800,000. The
following data were gathered: The adjusting journal entry to adjust the allowance for
Credit sales Write-offs Recoveries doubtful accounts as of Dec. 31, 2022 will include a
2019 P10,000,000 P250,000 P20,000 debit to doubtful accounts expense of
2020 14,000,000 400,000 30,000 a. P52,795 c. P24,795
2021 16,000,000 650,000 50,000 b. P38,795 d. P14,000
2022 25,000,000 1,100,000 145,000
SOLUTION GUIDE:
Doubtful accounts are provided for as percentage of
Category Balance Rate Allow.
credit sales. The accountant calculates the percentage
annually by using the experience of the three years 0 - 30 days P262,400 1% P2,624
prior to the current year. How much should be
reported as 2022 doubtful accounts expense? 31 - 60 days 177,280 1.5% 2,659
a. P750,000 c. P330,000
b. P812,500 d. P875,000 61 - 90 days 130,400 3% 3,912

91 - 120 days 117,600 10% 11,760

31. John Corp. has the following data relating to accounts
receivable for the year ended Dec. 31, 2022: Over 120 days 35,680 50% 17,840
Accounts receivable, Jan. 1, 2022 P480,000
Allowance for doubtful accounts, P723,360 P38,795
Jan. 1, 2022 19,200
Sales during the year, all on account, 33. Which statement is incorrect regarding presentation of
terms 2/10, 1/15, n/60 2,400,000 receivables in the statement of financial position?
Cash received from customers during a. Trade receivables are reported under current
the year 2,560,000 assets.
Accounts written off during the year 17,600 b. Non-trade receivables are included in the line item
An analysis of cash received from customers during the ‘trade and other receivables’ if they are expected
to be realized within twelve months after the
year revealed that P1,411,200 was received from
reporting period.
customers availing the 10-day discount period,
P792,000 from customers availing the 15-day discount c. Non-trade receivables are reported as non-current
if they are not expected to be realized within
period, P4,800 represented recovery of accounts
written-off, and the balance was received from twelve months after the reporting period
d. None of these.
customers paying beyond the discount period.
The allowance for doubtful accounts is adjusted so that 34. The following are normally included in the line item
it represents certain percentage of the outstanding trade and other receivables, except
accounts receivable at year end. The required a. Advances to subsidiaries and affiliates
percentage at Dec. 31, 2022 is 125% of the rate used b. Advances to officers and employees
on Dec. 31, 2021. c. Receivables from sale of securities or property
other than inventory.
The doubtful accounts expense for 2022 is
d. Dividends and interest receivable.
a. P6,880 c. P8,720
b. P7,120 d. P8,960
35. In accordance with PFRS 15, a receivable is
a. An entity’s right to consideration that is
32. The accounts receivable subsidiary ledger of Besao
unconditional (only the passage of time is required
Corporation shows the following information:
before payment of that consideration is due).
12/31 Invoice b. An entity’s right to consideration in exchange for
Account goods or services that the entity has transferred to
Customer balance Date Amount a customer when that right is conditioned on
Maybe, Inc. P140,720 12/06 P56,000 something other than the passage of time (for
11/29 84,720 example, the entity’s future performance).
Perhaps Co. 83,680 09/02 48,000 c. An entity’s obligation to transfer goods or services
08/20 35,680 to a customer for which the entity has received
Pwede Corp. 122,400 12/08 80,000 consideration (or the amount is due) from the
10/25 42,400 customer.
Perchance Co. 180,560 11/17 92,560 d. A party that has contracted with an entity to obtain
10/09 88,000 goods or services that are an output of the entity’s
Possibly Co. 126,400 12/12 76,800 ordinary activities in exchange for consideration.
12/02 49,600
Luck, Inc. 69,600 09/12 69,600
Total P723,360 P723,360

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EXCEL PROFESSIONAL SERVICES, INC.

36. If an entity reported a contract liability in its statement

of financial position, it means that
a. The entity has no receivables.
b. Neither the entity nor the customer has performed.
c. The entity’s performance is more than the
customer’s payment.
d. The entity’s performance is less than the
customer’s payment.

37. The objective of the disclosure requirements in PFRS

15 is for an entity to disclose sufficient information to
enable users of financial statements to understand the
nature, amount, timing and uncertainty of revenue and
cash flows arising from contracts with customers. To
achieve that objective, an entity shall disclose
qualitative and quantitative information about
a. Its contracts with customers.
b. The significant judgements, and changes in the
judgements, made in applying PFRS 15 its
contracts with customers.
c. Any assets recognized from the costs to obtain or
fulfill a contract with a customer.
d. All of these.

38. PFRS 7 requires disclosures about qualitative and

quantitative information about exposure to risks
arising from financial instruments. These risks include
a. The risk that one party to a financial instrument
will cause a financial loss for the other party by
failing to discharge an obligation.
b. The risk that an entity will encounter difficulty in
meeting obligations associated with financial
liabilities that are settled by delivering cash or
another financial asset.
c. The risk that the fair value or future cash flows of a
financial instrument will fluctuate because of
changes in market prices.
d. All of these.

39. For each type of risk arising from financial instruments,

an entity shall disclose:
a. The exposures to risk and how they arise.
b. Its objectives, policies and processes for managing
the risk and the methods used to measure the risk.
c. Any changes in (a) or (b) from the previous period.
d. All of these.

40. In relation to receivables, PFRS 7 does not require an

entity to disclose
a. Receivables pledged as collateral.
b. Information about credit risk that enable users of
financial statements to understand the effect of
credit risk on the amount, timing and uncertainty
of future cash flows.
c. Significant concentrations of credit risk arising
from receivables.
d. Fair value of short-term trade receivables.

J - end of FAR.3317 - J

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