ADVANCED FINANCIAL ACCOUNTING AND REPORTING
Number 26
On January 1, 2020, San Juan Builders Inc. accepted a long-term construction project to
build a bridge. The outcome of the construction project can be estimated reliably and the
contractor decided to employ cost to cost method. The following data are provided by the
accountant and project manager concerning the contract price and contract costs for
three years of construction:
Year
12/31/2020
12/31/2021
12/31/2022
P
10,000,000
P
15,000,000
P 20,000,000
1,000,000
5,000,000
Estimated cost to complete at the end of
the year
3,000,000
4,000,000
Contract price as of the end of the year
Costs incurred during the year
8,000,000
2,000,000
What is San Juan Builder’s realized gross profit / (loss) for the year ended
December 31, 2022?
Number 27
On January 1, 2031, Dev’t Corp. accepted a long term construction project to build a
condominium at a fixed contract price of P100M. The outcome of the construction project
cannot be estimated reliably. The following data are provided by the accountant and
project manager concerning the construction costs for the three years of construction.
Year
12/31/2031 12/31/2032
Cumulative costs incurred as of the end of P
P
the year
40,000,000 50,000,000
Estimated cost to complete at the end of the
year
90,000,000 60,000,000
12/31/2033
P
70,000,000
20,000,000
What is Dev’t Corp.’s realized gross profit / (loss) for the year ended December 31,
2033?
Number 28
On January 1, 2011, Arki Inc. started the construction of a building with a fixed contract
price of P 10,000,000. The outcome of the construction project can be estimated reliably
and the contractor decided to employ cost to cost method. The following data are provided
by the accountant and project manager concerning the construction costs for the three
years of construction:
Year
Cost incurred during the year
12/31/201
1
?
Realized gross profit/loss during the year
P 750,000
Percentage of completion as of the end of
the year
37.5%
12/31/201
2
P
1,500,000
(P
250,000)
50%
12/31/2013
P 3,740,000
(P 800,000)
80%
What is the balance of Construction in Progress on Arki Inc.’s Statement of
Financial Position on December 31, 2013?
Number 29
On January 1, 2041, ENGR Inc. accepted a long-term construction project to construct a
building with an initial contract price of P 10,000,000. The outcome of the construction
project can be estimated reliably and the contractor decided to employ cost to cost
method. During 2043, the contract price increases due to the change in the project design.
The following data are provided by the accountant and project manager concerning the
construction costs for the three years of construction:
Year
12/31/2041
12/31/204
2
?
Cumulative costs incurred as of the end of
the year
Realized gross profit/loss during the year
P
1,000,000
?
P 350,000
Percentage of completion as of the end of the
year
12.5%
60%
12/31/2043
P
10,800,000
(P
1,600,000)
90%
What is ENGR Inc.’s Cost of Construction Revenue to be recognized in its Income
Statement for the year ended December 31, 2043?
Number 30
On July 1, 2020, Toki-Toki Inc., a franchisor entered into a contract with a franchisee for
the establishment of a restaurant. The franchise agreement provides that the franchisee
shall pay a non-refundable franchise fee in the amount of P 500,000 with P 200,000
payable at the signing of the contract and the balance payable in three equal annual
installments starting June 30, 2021. The franchisee issued a non-interest bearing note
with effective interest rate of 10%. The present value of the note receivable using the
effective interest rate is P 248,685. The collection of the note is reasonably assured. Aside
from that, the franchisee shall pay on-going royalties equivalent to 5% of franchisee’s
revenue for the year. As of July 1, 2020, Toki-Toki has substantially performed the
obligation under the initial franchise fee. The franchisee reported P 200,000 and P
300,000 sales revenue for the year 2020 and 2021, respectively. What is the amount
of total revenue to be recognized Toki-Toki Inc. for the year ended December 31,
2021?
Number 31
On January 1, 2030, Starbuko 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 franchisee fee in the amount of P 8,000,000
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 Starbuko to (1) to construct the coffee shop; (2) to allow the
franchisee to use the Starbuko’s trademark for a period of 20 years from the signing of
contract; and (3) to deliver 100,000 unit of raw 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 Contract 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 separate performance obligations. Based on
franchisor’s data, it is established that the stand-alone selling prices of: (1) Construction
of coffee shop is P 5,000,000; (2) License to use Starbuko’s trademark is P 2,000,000;
and (3) Delivery of raw beans is P 3,000,000.
On January 1, 2030, the franchisee paid the initial franchise fee. As of December 31,
2030, Starbuko Inc. has completed 80% of the coffee shop which already allowed the
franchisee to operate. During the said year, Starbuko Inc. has already delivered 30,000
units of raw beans to the franchisee. For the year ended December 31, 2030, Starbuko
Inc. reported sales revenue amounting to P 500,000. What is the total revenue to be
reported by Starbuko Inc. for the year ended December 31, 2030?
Number 32
On July 1, 2022, Mcgreen Inc., a franchisor, entered into a contract with a franchisee for
the operation of a restaurant. The franchise agreement provides that the franchisee shall
pay a non-refundable upfront franchise fee amounting to P 2,500,000 with P 500,000
payable at the signing of contract and the balance payable in five equal semi-annual
installments every December 31 and June 30. The franchisee issued a non-interest
bearing note with effective interest rate of 10%. The present value of the note receivable
is P 1,731,791. The collection of the note receivable is unlikely. The franchise agreement
further provides for the payment of on-going royalties equivalent to 3% based on
franchisee’s sales revenue.
During 2020, Mcgreen Inc. has substantially performed the direct cost of services required
by the franchise in the amount of P 1,785,433. In the same year, Mcgreen Inc. has also
incurred indirect cost amounting to P 10,000. For the years 2020 and 2021, the franchisee
has reported sales revenue amounting to P 400,000 and P 600,000, respectively. What
is the net income to be reported by Mcgreen Inc. for the year ended December 31,
2021?
Number 33
SM Appliances Inc. sells its inventories under instalment contract. The 2017 book of the
company before necessary adjustment has provided the following data:
Installment Receivable 1/1/2017 (2016 contract)
Instalment Receivable 12/31/2017 (2016 contract)
Installment Receivable 12/31/2017 (2017 contract)
2017 Instalment sales (exclusive of sales of repossessed
inventory)
Deferred gross profit 1/1/2017 (2016 contract)
Deferred gross profit 12/31/2017 (2016 contract)
Deferred gross profit 12/31/2017 (2017 contract)
Debit
6,000,000
3,000,000
5,000,000
Credit
10,000,000
?
1,200,000
3,200,000
The following additional data are provided for year 2017:




On March 1, 2017, a 2016 instalment receivable is written off and bad debt
expense of P 1,400,000 is recognized.
On October 1, 2017, the company repossessed inventory from 2017 instalment
contract. The fair value of the repossessed inventory is P 1,000,000 while the loss
on repossession recognized is P 200,000.
On December 1, 2017, the repossessed inventory on October 1, 2017 was resold
at a selling price of P 1,500,000 after being reconditioned at a cost of P 200,000.
For 2016 contracts the total collection made during 2017 amounted to P 1,000,000
while for 2017 contracts the total collection made during 2017 is P 3,000,000.
What is the total realized gross profit to be recognized in the Income Statement for
the year ended December 31, 2017?
Number 34
On January 1, 2017, Honda Makati Inc. sold a car a price of P 3,400,000. The terms of
the contract provides that P 400,000 cash is payable at contract signing and a used car
will be received 3 days after as additional down payment from the buyer. The trade-in
value allowed on the used car is P 1,000,000. On the same date, the buyer issued a 10%
interest-bearing note for the balance of the price. The note is payable in 4 equal semiannual instalments every June 30 and December 31. The used car has estimated selling
price of P 1,500,000 after reconditioning cost of P 100,000 with a normal profit of 20%.
The production cost of the car is P 2,450,000. What is the realized gross profit for the
year ended December 31, 2017?
Number 35
On January 1, 2020, Abenson Inc. sold a TV set a price of P 100,000. The contract
provides that 10% is payable on the date of contract and an old cellphone will be received
as additional down payment within 10 days. The old cellphone has a trade-in value of P
30,000. On the same date, Abenson Inc. received a 1 year 10% interest bearing note
payable in 4 equal quarterly instalment every March 31, June 30, September 30 and
December 31 for the balance of the price. The interest will be based on the outstanding
balance of the note. At the date of the contract, the old cellphone has an estimated selling
price of P 60,000 after reconditioning cost of P 4,000 with normal profit of 10%. The
production cost of TV set is P 84,000. Abenson was able to collect the instalment due
and its corresponding interest on March 31 and June 30. However the buyer defaulted on
the instalment due on September 30 but was able to pay the interest for that period. It
resulted to the repossession of the TV set. The fair value of the TV on the date of
repossession is P 15,000. On November 1, 2020, the repossessed TV set was resold at
a selling price of P 19,000 after reconditioned at a cost P 3,375.
What is the Abenson’s net income for the year ended December 31, 2020?