LEARNING ADVANCEMENT CPA REVIEW CENTER AFARQ

RM 413 DONA AMPARO BUILDING ESPANA BOULEVARD CORNER G. TOLENTINO ST.

SAMPALOC, MANILA 07
CONTACT # (02) 244 6342 / 0915 537 1189 / 0943 595 5364
ADVANCED FINANCIAL ACCOUNTING AND REPORTING I. BAGAYAO/A. TANG/B. VILLALUZ

IFRS 15 REVENUE FROM CONTRACTS WITH CUSTOMERS

GENERAL APPLICATION OF IFRS 15

Problem 1:
On January 1, 2019, Global Techies Co. 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 P14,400,000 cash. Global Techies has determined that
each good or service is a separate performance obligation. The software license grants the user the right to use the Global Techies
software. Global Techies sells the license, installation, updates and technical support separately at the following selling prices:

Software license P9,000,000

Installation service 3,600,000
Software updates and technical support 5,400,000
Total 18,000,000

1. How much is the transaction price?

A. 7,200,000 B. 9,000,000 C. 14,400,000 D. 18,000,000

2. How much of the transaction is allocated to each performance obligations, respectively?

A. 14,400,000; 0; 0
B. 7,200,000; 2,880,000; 4,320,000
C. 9,000,000; 3,600,000; 5,400,000
D. 6,000,000; 6,000,000; 6,000,000

3. How much is the revenue of Global Techies Co. for the year 2019?
A. 2,880,000 B. 8,640,000 C. 10,944,000 D. 14,400,000

4. How much is the balance of the contract liability account on December 31, 2019?
A. 3,456,000 B. 7,056,000 C. 10,944,000 D. 14,400,000

5. How much is the revenue of Global Techies Co. for the year 2020?
A. 0 B. 864,000 C. 2,880,000 D. 3,456,000

Problem 2:
Global Telecoms, Inc. entered into a contract with Ms. Georgy Pearly, a customer, on April 1, 2019. The contract between Global
Telecoms, Inc. and Ms. Georgy Pearly contains the following provisions:

 Subscription to Global Telecoms, Inc.’s Plan 599 for a period of 24 months. Monthly fee will be P599 starting April 30, 2019.
 Ms. Georgy Pearly shall receive a free Apple Notepad from Global Telecoms, Inc. immediately on April 1, 2019.

Global Telecoms, Inc. sells the same Apple Notepad for P5,400 and the same monthly plan for P400 per month without the Apple
Notepad.

6. How much is the transaction price in accordance with IFRS 15 Revenue from Contracts with Customers?
A. 9,201 B. 9,600 C. 14,376 D. 15,000

7. What amount of total revenue shall be reported for the year 2019 in accordance with IFRS 15, Revenue from
Contracts with Customers?
A. 3,600 B. 5,391 C. 8,626 D. 14,376

Problem 3:
On January 1, 2019, Elliot Co. enters into a contract with James Corp. for the sale of two products, Product A and Product B, for a total
consideration of P1,800,000. The contract requires Product A to be delivered on February 1, 2019 and states that the payment for the
delivery of Product A is conditional on the delivery of Product B. Product B is delivered on June 1, 2019.

The relative stand-alone selling prices of products A and B are P1,000,000 and P1,500,000, respectively.

8. What is the journal entry on February 1, 2018 to record the performance of the obligation to deliver product A
to the customer?
A. Accounts receivable 720,000
Sales 720,000

B. Accounts receivable 1,000,000

Sales 1,000,000

C. Contract Asset 720,000

Sales 720,000

D. Contract Asset 1,000,000

AFARQ 08 Page 1 of 4
 LEARNING ADVANCEMENT CPA REVIEW CENTER AFARQ
RM 413 DONA AMPARO BUILDING ESPANA BOULEVARD CORNER G. TOLENTINO ST.
SAMPALOC, MANILA 07
CONTACT # (02) 244 6342 / 0915 537 1189 / 0943 595 5364
ADVANCED FINANCIAL ACCOUNTING AND REPORTING I. BAGAYAO/A. TANG/B. VILLALUZ

Sales 1,000,000

9. What is the journal entry on June 1, 2018 upon performance of the obligation to deliver product B to the customer
and to recognize unconditional right to consideration?
A. Accounts receivable 1,080,000
Sales 1,080,000

B. Accounts receivable 1,800,000

Sales 1,080,000
Contract asset 720,000

C. Accounts receivable 1,500,000

Sales 1,500,000

D. Accounts receivable 2,500,000

Sales 1,500,000
Contract asset 1,000,000

Problem 4:
On March 1, 2018. Garfield Co. enters into a cancellable contract to transfer a product to a customer on July 31, 2018. It is agreed that
the customer will pay the full price of P20,000 in advance on April 1, 2018. However, the customer actually paid on April 30, 2018 and
Garfield delivers the product on July 31, 2018. The cost of the product is P15,000.

10. What is the journal entry on April 1, 2018 when the payment on the contract is due?
A. No entry

B. Accounts receivable 20,000

Sales 20,000

C. Accounts receivable 20,000

Contract liability 20,000

D. Cash 20,000
Contract liability 20,000

11. What is the journal entry to record the receipt of cash on April 30, 2018?
A. Cash 20,000
Sales 20,000

B. Cash 20,000
Contract liability 20,000

C. Cash 20,000
Accounts receivable 20,000

D. Cash 20,000
Contract asset 20,000

12. What is the journal entry to record the satisfaction of performance obligation on July 31, 2018?
A. Cash 20,000
Sales 20,000

B. Accounts receivable 20,000

Contract liability 20,000

C. Contract liability 20,000

Sales 20,000

D. Contract asset 20,000

Sales 20,000

Problem 5:
On March 1, 2018. Garfield Co. enters into a non-cancellable contract to transfer a product to a customer on July 31, 2018. It is agreed
that the customer will pay the full price of P20,000 in advance on April 1, 2018. However, the customer actually paid on April 30, 2018
and Garfield delivers the product on July 31, 2018. The cost of the product is P15,000.

13. What is the journal entry on April 1, 2018 when the payment on the contract is due?
A. No entry

B. Accounts receivable 20,000

AFARQ 08 Page 2 of 4
 LEARNING ADVANCEMENT CPA REVIEW CENTER AFARQ
RM 413 DONA AMPARO BUILDING ESPANA BOULEVARD CORNER G. TOLENTINO ST.
SAMPALOC, MANILA 07
CONTACT # (02) 244 6342 / 0915 537 1189 / 0943 595 5364
ADVANCED FINANCIAL ACCOUNTING AND REPORTING I. BAGAYAO/A. TANG/B. VILLALUZ

Sales 20,000

C. Accounts receivable 20,000

Contract liability 20,000

D. Cash 20,000
Contract liability 20,000

14. What is the journal entry to record the receipt of cash on April 30, 2018?
A. Cash 20,000
Sales 20,000

B. Cash 20,000
Contract liability 20,000

C. Cash 20,000
Accounts receivable 20,000

D. Cash 20,000
Contract asset 20,000

15. What is the journal entry to record the satisfaction of performance obligation on July 31, 2018?
A. Cash 20,000
Sales 20,000

B. Accounts receivable 20,000

Contract liability 20,000

C. Contract liability 20,000

Sales 20,000

D. Contract asset 20,000

Sales 20,000

FRANCHISE
Problem 6:
Ivanni enters into a contract for three years with Algeranni to transfer a license. The agreement signed on January 2, 2019 called for a
P60,000 down payment plus a 10% note of P42,000 payable in three equal annual installments starting December 31, 2019. The license
provides that Algeranni has the right to use the secret formula to produce a drink that stimulates a six-pack abs overnight. The license
does not explicitly require Ivanni to undertake activities that will significantly affect the secret formula to which Algeranni has rights. The
collectability of the note is reasonably assured.

16. What is the total revenue related to the licensing agreement to be recognized in 2019?
A. 34,000 B. 38,200 C. 102,000 D. 106,200

17. Assume that the license provides Algeranni the right to access the secret formula. Algeranni is bound by the
terms of the contract to follow with the policies on the use of the secret formula by Ivanni but is given the right
to any subsequent modifications to the secret formula. What is the total revenue related to the licensing
agreement to be recognized on December 31, 2019?
A. 34,000 B. 35,400 C. 38,200 D. 106,200

Problem 7:
Ivanni enters into a contract for three years with Algeranni to transfer a license. The agreement signed on January 2, 2019 called for a
P60,000 down payment plus a noninterest-bearing note of P42,000 payable in three equal annual installments starting December 31,
2019. The management of Algeranni has estimated that they can borrow a loan of this type at 10%. The present value factor of an
ordinary annuity at 10% for three periods is 2.4869. The license provides that Algeranni has the right to use the secret formula to produce
a drink that stimulates a six-pack abs overnight. The license does not explicitly require Ivanni to undertake activities that will significantly
affect the secret formula to which Algeranni has rights. The collectability of the note is reasonably assured.

18. What is the total revenue related to the licensing agreement to be recognized in 2019?
A. 32,766 B. 35,088 C. 94,817 D. 98,299

19. Assume that the license provides Algeranni the right to access the secret formula. Algeranni is bound by the
terms of the contract to follow with the policies on the use of the secret formula by Ivanni but is given the right
to any subsequent modifications to the secret formula. What is the total revenue related to the licensing
agreement to be recognized on December 31, 2019?
A. 32,766 B. 35,088 C. 94,817 D. 98,299

Problem 8:

AFARQ 08 Page 3 of 4
 LEARNING ADVANCEMENT CPA REVIEW CENTER AFARQ
RM 413 DONA AMPARO BUILDING ESPANA BOULEVARD CORNER G. TOLENTINO ST.
SAMPALOC, MANILA 07
CONTACT # (02) 244 6342 / 0915 537 1189 / 0943 595 5364
ADVANCED FINANCIAL ACCOUNTING AND REPORTING I. BAGAYAO/A. TANG/B. VILLALUZ

On May 31, 2019, FIFTY SHADES Diner entered into a franchise agreement with GJ Foods Inc. to sell their products. The franchise
agreement provides for an initial franchise fee of P2,400,000 which is payable as follows: P800,000 cash to be paid upon signing the
agreement, and the balance in five equal annual installments every December 31, starting 2019. FIFTY SHADES Diner signs a non-
interest bearing note for the balance. The credit rating of the franchisee indicates that the money can be borrowed at 10%. The present
value factor of an ordinary annuity at 10% for five periods is 3.7908.

The agreement further provides that the franchisee must pay a continuing franchise fee equal to 5% of its monthly gross sales. GJ Foods
Inc. incurred direct cost of P1,080,000, of which P340,000 is related to continuing services and indirect costs of P144,000, of which
P36,000 is related to continuing services. The franchisee started business operations on September 3, 2019 and was able to generate
sales of P1,900,000 for 2019.

20. Compute for the net income (loss) of the franchisor for the year ended December 31, 2019 in accordance with
(1) IAS 18, Revenue and (2) IFRS 15, Revenue from Contracts with Customers assuming the collection of the
note is reasonably assured.
A. (1) (318,238); (2) 345,300
B. (1) 345,300; (2) 345,300
C. (1) 954,818; (2) 954,818
D. (1) 345,300; (2) (318,238)

21. Compute for the net income (loss) of the franchisor for the year ended December 31, 2019 in accordance with
(1) IAS 18 Revenue and (2) IFRS 15, Revenue from Contracts with Customers assuming the collection of the
note is not reasonably assured.
A. (1) (318,238); (2) 345,300
B. (1) 345,300; (2) 345,300
C. (1) 954,818; (2) 954,818
D. (1) 345,300; (2) (318,238)

Problem 9:
On January 1, 2019, Baguio’s Best Inc., a franchisor entered into a contract with a franchisee for the establishment of a coffee shop. The
franchise agreement provides that the franchisee shall pay a non-refundable upfront franchise fee in the amount of P4,000,000 payable
at the date of signing of contract. The franchise agreement also provides for the payment of on-going royalties equivalent to 10% of
franchisee’s revenue. The franchise agreement requires the franchisor to (1) construct the coffee shop; (2) to allow the franchisee to use
the franchisor’s trademark for a period of 20 years from the signing of contract, and; (3) to deliver 100,000 units of raw coffee beans for
the franchisee’s operation.

Based on the evaluation of the contract, it is determined that it is covered by IFRS 15 Revenue from Contracts with Customers. It is
determined that the franchisee’s three performance obligations under the franchise contract are separate and distinct from each other
and need to be accounted for as a separate performance obligations. Based on the franchisor’s data, it is established that the stand-
alone selling prices: (1) Coffee shop construction is P2,500,000; (2) License to use the franchisor’s trademark is P1,000,000, and; (3)
Delivery of raw coffee beans is P1,500,000.

On January 1, 2019, the franchisee paid the initial franchise fee. As of December 31, 2019, the franchisor has completed 80% of the
coffee shop which already allowed the franchisee to operate. During 2019, the franchisor has already delivered 30,000 units of raw coffee
beans to the franchisee. For the year ended 2019, the franchisee reported sales revenue of P250,000.

22. What is the total revenue to be reported by the franchisor for the year ended 2019?
A. 1,985,000 B. 2,025,000 C. 4,025,000 D. 5,000,000

END

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