Process of Corporate Liquidation

1) Determine the net realizable value (NRV) of assets

2) Determine the net free assets

(NRV – Payment to secured creditors)

3) Determine the recovery percentage of unsecured

creditors without priority

4) Determine payment to each class of creditors

 IFRS 15:
REVENUE FROM
CONTRACT WITH
CUSTOMERS
Reference: IFRS 15, Advanced Financial Accounting (Antonio Dayag, 2021)
 DEFINITION OF TERMS
Revenue:
 Income arising in the course of an entity’s ordinary
activities.
 Sales, fees, interest, dividends, royalties and rent.

Contract:
 An agreement between two or more parties that created
enforceable rights and obligations.

Customer:
 A party that has contracted with an entity to obtain
goods or services in exchange for a consideration.
 IFRS 15:
REVENUE FROM
CONTRACT WITH
CUSTOMERS
Reference: IFRS 15, Advanced Financial Accounting (Antonio Dayag, 2021)
 MEETING AGENDA:

1) Nature and Timing of Revenue Recognition (IAS 18)

2) Overview of IFRS 15
3) Application of the 5-step process of revenue
recognition
Nature and Timing of Revenue
Recognition (IAS 18)
 Exercise:

What are the examples of revenues generated from usage

of asset:

a) Sales revenue
b) Fees earned
c) Service revenue
d) Interest, rental, royalties
 Exercise:

What are the examples of revenues generated from usage

of asset:

a) Sales revenue
b) Fees earned
c) Service revenue
d) Interest, rental, royalties
Nature and Timing of Revenue
Recognition (IAS 18)
 Exercise:

What is the timing of revenue recognition for sales of

service?

a) Date of sale
b) Date of delivery
c) When service is performed
d) As time passes
 Exercise:

What is the timing of revenue recognition for sales of

service?

a) Date of sale
b) Date of delivery
c) When service is performed
d) As time passes
Nature and Timing of Revenue
Recognition (IAS 18)
 MEETING AGENDA:

1) Nature and Timing of Revenue Recognition

2) Overview of IFRS 15
3) Application of the 5-step process of revenue
recognition
 OVERVIEW OF IFRS 15
 Issued last May 2014 and applies to an annual reporting
beginning on or after January 1, 2018.

 Replaces the following standards:

IAS 18- Revenue
IAS 11- Construction Contracts
SIC 31 Revenue – Barter Transactions (Advertising services)
IFRIC 13- Customer Loyalty Programs
IFRIC 15- Agreements for Construction of Real Estate
IFRIC 18 – Transfer of Assets from Customers
 OVERVIEW OF IFRS 15
 Revenue recognition standard which provides a single,
principles based five-step model to be applied to all
contract with customers except for:

IAS 17 – Leases
IFRS 9 – Financial Instruments
IFRS 10 – Consolidated Financial Statements
IFRS 11 – Joint Arrangements
IAS 27 – Separate Financial Statements
IAS 28 – Investment in Associates
IFRS 4 – Insurance Contracts
OVERVIEW OF IFRS 15
 MEETING AGENDA:

1) Nature and Timing of Revenue Recognition

2) Overview of IFRS 15
3) Application of the 5-step process of revenue
recognition
 Application of the 5 – Step Process
(At a glance)
Assume than on December 1, 2021, Anton receives an order
from a customer for a computer as well as 12 months of
technical support. Anton delivers the computer (and transfers its
legal title) to the customer on the same day. The customer paid
P50,400 upfront. The computer sells for P36,000 and the
technical support for P14,400.
Application of the 5 – Step Process
(At a glance)
1. IDENTIFY THE CONTRACT WITH CUSTOMER
2. IDENTIFY SEPARATE PERFORMANCE OBLIGATION IN A
CONTRACT.
3. DETERMINE TRANSACTION PRICE
4. ALLOCATE TRANSACTION PRICE TO SEPARATE
PERFORMANCE OBLIGATIONS.
5. RECOGNIZE REVENUE WHEN (OR AS) EACH PERFORMANCE
OBLIGATION IS SATISFIED.
 Application of the 5 – Step Process
(At a glance)
Assume that on December 1, 2021, Anton receives an order from
a customer for a computer as well as 12 months of technical
support. Anton delivers the computer (and transfers its legal
title) to the customer on the same day. The customer paid
P50,400 upfront. The computer sells for P36,000 and the
technical support for P14,400.

Step 1: Identify the contract with a customer

 There is an agreement between Anton and its customer for

the provision of goods and services.
 Application of the 5 – Step Process
(At a glance)
Assume that on December 1, 2021, Anton receives an order from a
customer for a computer as well as 12 months of technical support.
Anton delivers the computer (and transfers its legal title) to the
customer on the same day. The customer paid P50,400 upfront. The
computer sells for P36,000 and the technical support for P14,400.

Step 2: Identify the separate performance obligations within a contract

 There are two performance obligations within the contract:

1. The supply of computer
2. The supply of technical support
 Application of the 5 – Step Process
(At a glance)
Assume that on December 1, 2021, Anton receives an order from
a customer for a computer as well as 12 months of technical
support. Anton delivers the computer (and transfers its legal title)
to the customer on the same day. The customer paid P50,400
upfront. The computer sells for P36,000 and the technical support
for P14,400.

Step 3: Determine the transaction price.

 Total transaction price is P50,400.

 Application of the 5 – Step Process
(At a glance)
Assume that on December 1, 2021, Anton receives an order from a
customer for a computer as well as 12 months of technical support.
Anton delivers the computer (and transfers its legal title) to the
customer on the same day. The customer paid P50,400 upfront. The
computer sells for P36,000 and the technical support for P14,400.

Step 4: Allocate the transaction price to the performance obligations.

Based on the stand alone prices allocation is as follows:

1. The supply of computer P36,000
2. The supply of technical support 14,400
P50,400
 Application of the 5 – Step Process
(At a glance)
Step 5: Recognize revenue when (or as) each performance obligation is
satisfied.

1. The supply of computer – Control has passed (point in time)

2. The supply of technical support – Provided over time (Over time)

Journal entry on December 1:

Cash P50,400
Sales revenue P36,000
Deferred revenue 14,400

Journal entry on December 31:

Deferred revenue P1,200
Service revenue (P14,400/12) P1,200
 5 – Step Process of Revenue
Recognition
1. IDENTIFY THE CONTRACT WITH CUSTOMER
2. IDENTIFY SEPARATE PERFORMANCE OBLIGATION IN A
CONTRACT.
3. DETERMINE TRANSACTION PRICE
4. ALLOCATE TRANSACTION PRICE TO SEPARATE
PERFORMANCE OBLIGATIONS.
5. RECOGNIZE REVENUE WHEN (OR AS) EACH PERFORMANCE
OBLIGATION IS SATISFIED.
 Identify Contract With Customer
Contract:
 An agreement between two or more parties that created enforceable rights and
obligations.
An entity can only account for revenue if the contract meets all of the following criteria:
a) Parties have approved and are committed to perform obligations.
b) Each party has right/s to the contract.
c) Existence of payment terms.
d) Commercial substance
e) Probable that the entity will collect the consideration in exchange of the
goods/services.

A Contract does not exist if both of the following are true:

• Neither of the party has performed any obligations under the contract.
• Both party can terminate the contract without penalty.
 Identify Contract With Customer
Illustration:
On September 30, 2020, Jason signed a contract with a customer to provide
them with an asset on December 31, 2020. Control over the asset passed to the
customer on December 31, 2020. The customer will pay P1,200,000 on June 30,
2021.

By December 31, 2020, Jason did not believe that it was probable that it would
collect consideration that it was entitled to.

Is there a valid contract?

 Identify Contract With Customer
Illustration:
On September 30, 2020, Jason signed a contract with a customer to provide
them with an asset on December 31, 2020. Control over the asset passed to
the customer on December 31, 2020. The customer will pay P1,200,000 on
June 30, 2021.

By December 31, 2020, Jason did not believe that it was probable that it
would collect consideration that it was entitled to.

Analysis/Solution:
None. The contract cannot be accounted for and no revenue should be
recognized.
 5 – Step Process of Revenue
Recognition
1. IDENTIFY THE CONTRACT WITH CUSTOMER
2. IDENTIFY SEPARATE PERFORMANCE OBLIGATION IN A
CONTRACT.
3. DETERMINE TRANSACTION PRICE
4. ALLOCATE TRANSACTION PRICE TO SEPARATE
PERFORMANCE OBLIGATIONS.
5. RECOGNIZE REVENUE WHEN (OR AS) EACH PERFORMANCE
OBLIGATION IS SATISFIED.
 Identify Separate Performance
Obligations
Performance obligation:
 A promise to provide a product or service to a customer.

To establish existence of performance obligations:

 Goods or services shall be distinct and separable.
a. Customer benefit on its own
b. Separately identifiable
 Series of goods or services that are substantially the same and transferred in the
same way.

* If a promise to transfer a good or service is not distinct or separable from other

goods or services in the contract, then it is combined into a single performance
obligation.
 Identify Separate Performance
Obligations

Illustration:
Jackson is building a multi-residential area. It enters into a
contract with a customer to a specific unit that is under
construction. The goods and services to be provided in the
contract include procurement, construction, piping, wiring,
installation of equipment and finishing.
 Identify Separate Performance
Obligations
Illustration:
Jackson is building a multi-residential area. It enters into a
contract with a customer to a specific unit that is under
construction. The goods and services to be provided in the
contract include procurement, construction, piping, wiring,
installation of equipment and finishing.

Analysis/Solution:
Although the goods or services provided are distinguishable, they
are not distinct because the goods or services cannot be
separately identified from the promise to construct the unit.
It will be accounted for as a single performance obligation.
 5 – Step Process of Revenue
Recognition
1. IDENTIFY THE CONTRACT WITH CUSTOMER
2. IDENTIFY SEPARATE PERFORMANCE OBLIGATION IN A
CONTRACT.
3. DETERMINE TRANSACTION PRICE
4. ALLOCATE TRANSACTION PRICE TO SEPARATE
PERFORMANCE OBLIGATIONS.
5. RECOGNIZE REVENUE WHEN (OR AS) EACH PERFORMANCE
OBLIGATION IS SATISFIED.
 Determine Transaction Price
Transaction Price:
 The amount of consideration that the entity expects to receive from a customer in
exchange of transferring the goods or services to a customer.
 It does not include amounts collected in behalf of third parties (sales tax, vat)

The effects of the following must be considered when determining the transaction
price:
a) Time value of money – Payment before or after delivery, measured at present
value
b) Non-cash consideration – Measured at fair value
c) Consideration payable to the customer – Treated as reduction in Transaction
price
d) Variable consideration – Based on estimates
 Determine Transaction Price
Transaction Price:
 The amount of consideration that the entity expects to receive from a customer in
exchange of transferring the goods or services to a customer.
 It does not include amounts collected in behalf of third parties (sales tax, vat)

The effects of the following must be considered when determining the transaction
price:
a) Time value of money – Payment before or after delivery, measured at
present value
b) Non-cash consideration – Measured at fair value
c) Consideration payable to the customer – Treated as reduction in Transaction
price
d) Variable consideration – Based on estimates
 Time Value of Money

On January 1, 2020, Demilo Gonzaga sold furniture to a

customer for P480,000 with three year interest-free credit. The
customer took delivery of the furniture on January 1, 2020. The
P480,000 is payable to Demilo Gonzaga on December 31, 2022.
Evelyn’s cost of capital is 8%.

Determine the transaction price.

 Time Value of Money
On January 1, 2020, Demilo Gonzaga sold furniture to a customer for P480,000 with
three year interest-free credit. The customer took delivery of the furniture on January 1,
2020. The P480,000 is payable to Demilo Gonzaga on December 31, 2022. Evelyn’s cost
of capital is 8%.
Analysis/Solution:
Transaction price = P480,000 x 1 / (1.08)^3 = P381,039

Journal entry on January 1, 2020:

Notes receivable P480,000
Sales P381,039
Discount on N/R (P480,000-P381,039) 98,961
Journal entry on December 31, 2020:
Discount on N/R (P381,039 x 8%) P30,483 Interest revenue
P30,483
 Determine Transaction Price
Transaction Price:
 The amount of consideration that the entity expects to receive from a customer in
exchange of transferring the goods or services to a customer.
 It does not include amounts collected in behalf of third parties (sales tax, vat)

The effects of the following must be considered when determining the transaction
price:
a) Time value of money – Payment before or after delivery, measured at present
value
b) Non-cash consideration – Measured at fair value
c) Consideration payable to the customer – Treated as reduction in Transaction
price
d) Variable consideration – Based on estimates
 Non-cash Considerations
Emil sells goods to Gerry. Control over the goods is transferred
on January 1, 2020. The consideration received by Emil is 1,000
shares in Gerry with a fair value of P120 each. By December
31, 2020, the shares in Gerry have a fair value of P600 each.

Determine the transaction price.

 Non-cash Considerations

Emil sells goods to Gerry. Control over the goods is transferred

on January 1, 2020. The consideration received by Emil is 1,000
shares in Gerry with a fair value of P120 each. By December
31, 2020, the shares in Gerry have a fair value of P600 each.

Analysis/Solution:
Transaction price = 1,000 shares x P120 = P120,000

*Any subsequent change in the fair value of the shares received

is not recognized within revenue.
 Determine Transaction Price
Transaction Price:
 The amount of consideration that the entity expects to receive from a customer in
exchange of transferring the goods or services to a customer.
 It does not include amounts collected in behalf of third parties (sales tax, vat)

The effects of the following must be considered when determining the transaction
price:
a) Time value of money – Payment before or after delivery, measured at present
value
b) Non-cash consideration – Measured at fair value
c) Consideration payable to the customer – Treated as reduction in
Transaction price or separate purchase transaction.
d) Variable consideration – Based on estimates
 Consideration Payable to
Customer
Dante enters into a contract with a major chain of retail stores.
The customer commits to buy at least P4,000,000 of products
over the next twelve (12) months. The terms of the contract
require Dante to make payment of P200,000 to compensate for
changes that it will need to make its retails stores to
accommodate the products. By December 31, 2020, Dante has
transferred products with sales value of P800,000 to the
customer.

Determine the transaction price.

 Consideration Payable to
Dante
Customer
enters into a contract with a major chain of retail stores. The
customer commits to buy at least P4,000,000 of products over the next
twelve (12) months. The terms of the contract require Dante to make
payment of P200,000 to compensate for changes that it will need to make
its retails stores to accommodate the products. By December 31, 2020,
Dante has transferred products with sales value of P800,000 to the
customer.

Analysis/Solution:
Transaction Price = P4,000,000 – P200,000 = P3,800,000

Revenue recognize in 2020 = P3,800,000 x *20% = P760,000

*P800,000/P4,000,000 = 20%
Note: If consideration paid to customer is in exchange for a distinct goods or services,
that purchase is accounted for as a separate transaction.
 Determine Transaction Price
Transaction Price:
 The amount of consideration that the entity expects to receive from a customer in
exchange of transferring the goods or services to a customer.
 It does not include amounts collected in behalf of third parties (sales tax, vat)

The effects of the following must be considered when determining the transaction
price:
a) Time value of money – Payment before or after delivery, measured at present
value
b) Non-cash consideration – Measured at fair value
c) Consideration payable to the customer – Treated as reduction in Transaction
price or separate purchase transaction.
d) Variable consideration – Based on estimates
 Variable Consideration
Sandy & Edwin Computer enters into a contract with ReSA
CPA Review School to install a CCTV system. On January 1,
2020, ReSA pays Sandy & Edwin an up-front fixed fee of
P50,000 for six months of featured access.

ReSA will also pay Sandy & Edwin a bonus of P30,000 if ReSA
can access cameras in a 24-hour situation wherein it can be
viewed in any location. Sandy & Edwin estimate a 70% chance
that it will achieve the usage target and receive the P30,000
bonus.

Determine Transaction price.

 Variable Consideration
Sandy & Edwin Computer enters into a contract with ReSA CPA Review School to install
a CCTV system. On January 1, 2020, ReSA pays Sandy & Edwin an up-front fixed fee of
P50,000 for six months of featured access.
ReSA will also pay Sandy & Edwin a bonus of P30,000 if ReSA can access cameras in a
24-hour situation wherein it can be viewed in any location. Sandy & Edwin estimate a
70% chance that it will achieve the usage target and receive the P30,000 bonus.

Alternative 1 (Expected value):

P80,000 x 70% = P56,000
P50,000 x 30% = 15,000
P71,000
Alternative 2 (Most likely amount):
Because there is a greater chance of qualifying for the bonus than of not qualifying for
the bonus, a transaction price based on the most likely amount would be P80,000.
 5 – Step Process of Revenue
Recognition
1. IDENTIFY THE CONTRACT WITH CUSTOMER
2. IDENTIFY SEPARATE PERFORMANCE OBLIGATION IN A
CONTRACT.
3. DETERMINE TRANSACTION PRICE
4. ALLOCATE TRANSACTION PRICE TO SEPARATE
PERFORMANCE OBLIGATIONS.
5. RECOGNIZE REVENUE WHEN (OR AS) EACH PERFORMANCE
OBLIGATION IS SATISFIED.
 Allocate the Transaction Price

 The Total transaction price should be allocated to each or separate performance

obligation in proportion the stand-alone selling price of the goods or services.
 Stand-alone selling price is the price at which the entity would sell a promised
goods or service separately to a customer.

Three (3) ways to allocate the transaction price:

a) Relative market value approach – based on the relative market value
b) Estimated cost plus margin approach – based on estimated cost plus a profit
margin
c) Residual approach – based on total transaction price less sum of the observable
stand-alone selling price of goods/services.
 Allocate the Transaction Price
Antonio Rodriguez, Inc. enters into a contract with a customer to transfer a
software license, perform installation, and provide software updates and
technical support for five years in exchange for P28,800,000. Antonio
Rodriguez has determined that each good or service is a separate
performance obligation. Antonio Rodriguez sells the license, installation,
updates and technical support, so each has a directly observable stand-
alone selling price:

Software license P18,000,000

Installation service 7,200,000
Software service 4,800,000
Technical support 6,000,000
Total P36,000,000
 Allocate the Transaction Price
Antonio Rodriguez, Inc. enters into a contract with a customer to transfer a
software license, perform installation, and provide software updates and
technical support for five years in exchange for P28,800,000. Antonio
Rodriguez has determined that each good or service is a separate
performance obligation. Antonio Rodriguez sells the license, installation,
updates and technical support, so each has a directly observable stand-
alone selling price:

Solution/analysis:
Software license 28,800,000 (18/36) P14,400,000
Installation service 28,800,000 (7.2/36) 5,760,000
Software service 28,800,000 (4.8/36) 3,840,000
Technical support 28,800,000 (6/36) 4,800,000
Total P28,800,000
 5 – Step Process of Revenue
Recognition
1. IDENTIFY THE CONTRACT WITH CUSTOMER
2. IDENTIFY SEPARATE PERFORMANCE OBLIGATION IN A
CONTRACT.
3. DETERMINE TRANSACTION PRICE
4. ALLOCATE TRANSACTION PRICE TO SEPARATE
PERFORMANCE OBLIGATIONS.
5. RECOGNIZE REVENUE WHEN (OR AS) EACH
PERFORMANCE OBLIGATION IS SATISFIED.
 Recognize Revenue
 Recognize revenue when (or as) each performance obligation is satisfied by
transferring a promised good or service to a customer.
 An asset is transferred when (or as) the customer gains control of the asset.
Indicators of transfer of control, the customer has:
1. Obligation to pay the seller
2. Legal title to the asset
3. Physical possession of the asset
4. Assumes risk and rewards of the ownership
5. Accepted the asset

The entity must determine whether the performance obligation will be satisfied:
a) Point in time
b) Over time
Recognize Revenue
 Recognize Revenue

Assume than on December 1, 2021, Anton receives an order from

a customer for a computer as well as 12 months of technical
support. Anton delivers the computer (and transfers its legal title)
to the customer on the same day. The customer paid P50,400
upfront. The computer sells for P36,000 and the technical support
for P14,400.
 Recognize Revenue
Recognize revenue when (or as) each performance obligation is satisfied.

1. The supply of computer – Control has passed (point in time)

2. The supply of technical support – Provided over time (Over time)

Journal entry on December 1:

Cash P50,400
Sales revenue P36,000
Deferred revenue 14,400

Journal entry on December 31:

Deferred revenue P1,200
Service revenue (P14,400/12) P1,200
END