Cebu Institute of Technology - University
College of Management Business and Accountancy
Department of Accountancy
FINAL EXAMINATION SET B
GENSBERGH G. RAGO, CPA
ACCTG311| A01 7:00-8:30
INSTRUCTOR
-----------------------------------------------------------------------------------------------Instructions: Write the CAPITAL letter of your answers on the first page of your examination
booklet. You may use the succeeding pages for your solutions. Strictly no erasures.
1. At contract inception, PFRS 15 requires an entity to determine how the performance obligations identified in the
contract will be satisfied. According to PFRS 15, how does an entity satisfy a performance obligation in a long-term
construction contract?
a. over time
b. dismissal time
c. at a point in time
d. either a or b
2. Which of the following statements is correct?
a. Long-term construction contracts are unique from other contracts with customers. Therefore, PFRS 15 excludes
from its scope the accounting for long-term construction contracts.
b. Long-term construction contracts are unique from other contracts with customers. Therefore, PFRS 15 requires
an entity to recognize revenue from long-term construction contracts using either the percentage of completion
method or the zero-profit method.
c. PFRS 15 does not provide a special distinction between long-term construction contracts from other contracts
with customers. Therefore, an entity shall apply the same principles in accounting for long-term construction
contracts as those applied to other contracts with customers.
d. PFRS 15 does not exclude long-term construction contracts from its scope. However, because of the unique
nature of long-term construction contracts, PFRS 15 requires an entity to recognize revenue from a long-term
construction contract that is expected to be completed within 3 years or more using the percentage of completion
method. For those that are expected to be completed within a shorter period, revenue shall be recognized when
construction is complete.
Use the following information for the next two questions:
PARAMOUR Co. was contracted by LOVER, Inc. for the construction of a flyover in 20x1. The contract price is ₱10M.
Information on costs is as follows:
20x1
20x2
Total costs incurred to date
1,600,000 6,000,000
Estimated costs to complete
6,400,000 1,500,000
3. How much revenue is recognized in 20x2?
a. 8M
b. 6M
c. 4M
d. 0
c. 40%
d. 16%
B Solution:
6M / (6M + 1.5M) = 80% x 10M = 8M revenue to date;
1.6M / (1.6M + 6.4M) = 20% x 10M = 2M revenue in 20x1;
(8M – 2M) = 6M revenue in 20x2
4. What is the percentage completed in 20x2?
a. 60%
b. 50%
A (80% completion to date – 20% completion in 20x1) = 60%
5. VALEDICTION Construction Co. entered into a P80M fixed price contract for the construction of a private road for
FAREWELL SPEECH, Inc. The performance obligation on the contract is satisfied over time. VALEDICTION
measures its progress on the contract using the “cost-to-cost” method. The estimated total contract cost is P40M.
The following were the actual costs incurred by VALEDICTION during the first year of the construction:
Costs of negotiating the contract (charged immediately
as expense)
Costs of materials used in construction
Costs of materials purchased but not yet used in construction
Site labor costs
Site supervision costs
Depreciation of equipment used in construction
Depreciation of idle construction equipment
Costs of moving plant, equipment and materials to and
400,000
12,000,000
2,000,000
4,000,000
800,000
480,000
240,000
160,000
1
from the contract site
Costs of hiring plant and equipment
Advance payments to subcontractors (subcontracted
work is not yet started)
How much revenue is recognized as of the end of the first year?
a. 25M
b. 36M
c. 45M
560,000
80,000
d. 46M
Solution:
The total costs incurred to date are computed as follows:
Costs of materials used in construction
Site labor costs
Site supervision costs
Depreciation of equipment used in construction
Costs of moving plant, equipment and materials to and
from the contract site
Costs of hiring plant and equipment
Total costs incurred to date
12,000,000
4,000,000
800,000
480,000
160,000
560,000
18,000,000
The percentage of completion as of the end of the first year is computed as follows:
Total costs incurred to date
=
Percentage of completion
Estimated total contract costs
Percentage of completion = 18,000,000 ÷ 40,000,000
Percentage of completion = 45%
90M x 45% = 36M
6. DELETERIOUS Construction Co. entered into a fixed price contract for the construction of a building for HARMFUL,
Inc. DELETERIOUS determines the stage of completion of construction contracts using the “cost-to-cost” method.
The estimated total costs of the contract are as follows:
Estimated costs of design and technical assistance that
are directly related to the contract
Estimated costs of design and technical assistance that
are not directly related to a specific contract (properly
allocated)
Estimated costs of materials to be used in the
construction
Estimated costs of construction labor
Estimated costs of rectification and guarantee work,
including expected warranty costs
Estimated administrative costs expected to be reimbursed
in accordance with contractual agreement
Estimated insurance costs during construction
Estimated construction overheads
Estimated marketing costs for selling condominium units
Estimated total contract costs
800,000
200,000
22,000,000
11,200,000
1,200,000
520,000
80,000
4,000,000
400,000
40,400,000
The following were the actual costs incurred by DELETERIOUS during the first year of the construction:
Costs of design and technical assistance that are directly related to the
contract
Costs of design and technical assistance that are not
directly related to a specific contract (properly allocated)
Costs of materials used in the construction
Costs of construction labor
Administrative costs expected to be reimbursed in accordance with
contractual agreement.
Administrative costs not expected to be reimbursed
Research and development costs for which reimbursement is not
specified in the contract
Insurance costs during construction
Construction overheads
400,000
100,000
12,000,000
6,000,000
480,000
120,000
7,200,000
60,000
960,000
2
Marketing costs
Total costs incurred to date
800,000
28,120,000
What is the percentage of completion of the contract as of the end of the first year?
a. 42%
b. 45%
c. 50%
d. 51%
C (28.12M – .120M - 7.2M - .8M) ÷ (40.4M - .4M) = 50%
Use the following information for the next two questions:
On September 1, 20x1, ABC Co. enters into a contract with a customer to remodel a plant’s electrical wirings and install
a new generator for a total consideration of ₱12M. The remodeling and the installation are treated as a single
performance obligation satisfied over time.
The expected contract costs are as follows:
Generator
Other costs
Expected total contract costs
4,000,000
5,000,000
9,000,000
Additional information:
• ABC Co. uses the cost-to-cost method in measuring its progress towards the complete satisfaction of the
performance obligation.
• ABC Co. incurs total costs of ₱6,000,000 in 20x1, including the cost of the generator.
• The customer obtains control of the generator when it is delivered to the site in December 20x1. However, the
generator will not be installed until March 20x2.
• ABC Co. regards the cost of the generator as significant in relation to the expected total contract costs (i.e., 4M ÷
9M = 44.44%).
• Although ABC Co. acted as a principal in procuring the generator, ABC Co. is not involved in designing or
manufacturing the generator.
7. How much revenue is recognized in 20x1?
a. 7,200,000
b. 3,200,000
c. 4,000,000
d. 5,600,000
A Solution:
Percentage of completion
=
Total costs incurred to date
Estimated total contract costs
= (6M total costs incurred – 4M cost of generator) ÷ (9M expected total contract costs – 4M cost of generator)
= 2M ÷ 5M
Percentage of completion = 40%
Total contract price
Less: Cost of generator
Total
Multiply by: Percentage of completion
Total
Add back: Cost of generator
Revenue
8. How much profit is recognized from the contract in 20x1?
a. 1,200,000
b. 1,800,000
c. 2,400,000
A Solution:
Expected total contract cost
Less: Cost of generator
Total
Multiply by: Percentage of completion
Total
Add back: Cost of generator
Cost of goods sold
Revenue
Cost of goods sold
12,000,000
(4,000,000)
8,000,000
40%
3,200,000
4,000,000
7,200,000
d. 5,600,000
9,000,000
(4,000,000)
5,000,000
40%
2,000,000
4,000,000
6,000,000
7,200,000
(6,000,000)
3
Profit
1,200,000
9. On Oct. 1, 20x1, ABC Co. enters into a construction contract with a customer. The performance obligation in the
contract will be satisfied over time. ABC Co. uses the “cost-to-cost” method in measuring its progress. The estimated
total contract cost is ₱10M. In 20x1, ABC Co. incurred a total cost of ₱6M, which includes ₱2M advance payment
to a subcontractor (the subcontracted work is not yet started) and ₱200,000 cost of materials not yet installed. ABC
Co. does not regard the cost of the unused materials as significant in relation to the expected total contract costs.
Moreover, ABC Co. retains control over the unused materials because it can use them in a contract with another
customer. What is the percentage of completion in 20x1?
a. 38%
b. 40%
c. 42%
d. 56%
A Solution:
Percentage of completion
Total costs incurred to date
Estimated total contract costs
=
Percentage of completion = (6M – 2M – 200K) ÷ 10M
Percentage of completion =(3.8M ÷ 10M) = 38%
10. On January 1, 20x1, ABC Co. enters into a contract with a customer for the construction of a building. The contract
price is ₱1,000,000. The following are the transactions during 20x1:
• At contract inception, the customer makes an advance payment of ₱100,000 as facilitation fee.
• ABC Co. incurs total contract costs of ₱300,000 during the period.
• The estimated costs to complete as of year-end amounts to ₱500,000.
• ABC Co. collects the billing, net of 10% retention by the customer to be used to rectify any unsatisfactory work
determined at the completion of the contract.
How much is the cost of construction that is recognized as expense in 20x1?
a. 175,000
b. 375,000
c. 300,000
d. 285,000
C Solution:
Total contract price
(a)
Costs incurred to date
Estimated costs to complete
(b)
Estimated total contract costs
Expected gross profit from contract
Multiply by: Percentage of completion (a) ÷ (b)
Gross profit earned to date
Less: Gross profit earned in previous years
Gross profit for the year
1,000,000
300,000
500,000
800,000
200,000
37.50%
75,000
75,000
Total contract price
Multiply by: Percentage of completion
Revenue to date
Less: Revenue recognized in previous yrs.
Revenue for the year
Cost of construction (squeezed)*
Gross profit for the year (see computation above)
1,000,000
37.50%
375,000
375,000
(300,000)
75,000
11. ABC Co. started work on two separate projects during 20x1. Information on these projects is shown below:
Project
A
B
Contract price
9,000,000
8,000,000
Costs incurred
4,000,000
5,000,000
Estimated costs to
complete
2,000,000
-
Progress billings
5,000,000
8,000,000
How much is the total balance of the “construction in progress” accounts as of December 31, 20x1 under zero-profit
method?
a. 4,000,00
b. 6,000,000
c. 14,000,000
d. 0
4
A Solution:
Project A – CIP = 4,000,000 costs incurred
Since Project B is 100% complete, it is assumed that the completed project was turned over to the customer.
12. The primary issue in accounting for construction contracts is
a. the determination of percentage of completion and proper determination of revenue to be recognized during
the period.
b. the allocation of contract revenue and contract costs to the accounting periods in which construction work is
performed.
c. the determination of the rate at which physical performance has been made during the reporting period and
the future performance on which future revenues will be allocated.
d. the allocation of costs of a long-lived asset to permit the proper matching of costs with revenues.
13. A construction contract may be
a. fixed price contract
b. cost plus contract.
c. a combination of a and b
d. any of these
14. VALEDICTION Construction Co. entered into a P80M fixed price contract for the construction of a private road for
FAREWELL SPEECH, Inc. The performance obligation on the contract is satisfied over time. VALEDICTION
measures its progress on the contract using the “cost-to-cost” method. The estimated total contract cost is P40M.
The following were the actual costs incurred by VALEDICTION during the first year of the construction:
Costs of negotiating the contract (charged immediately
as expense)
Costs of materials used in construction
Costs of materials purchased but not yet used in construction
Site labor costs
Site supervision costs
Depreciation of equipment used in construction
Depreciation of idle construction equipment
Costs of moving plant, equipment and materials to and
from the contract site
Costs of hiring plant and equipment
Advance payments to subcontractors (subcontracted
work is not yet started)
400,000
12,000,000
2,000,000
4,000,000
800,000
480,000
240,000
160,000
560,000
80,000
What is the percentage of completion of the contract as of the end of the first year?
a. 42%
b. 45%
c. 50%
d. 46%
15. On Oct. 1, 20x1, ABC Co. enters into a construction contract with a customer. The performance obligation in the
contract will be satisfied over time. ABC Co. uses the “cost-to-cost” method in measuring its progress. The estimated
total contract cost is ₱10M. In 20x1, ABC Co. incurred a total cost of ₱6M, which includes ₱2M advance payment
to a subcontractor (the subcontracted work is not yet started) and ₱200,000 cost of materials not yet installed. ABC
Co. does not regard the cost of the unused materials as significant in relation to the expected total contract costs.
Moreover, ABC Co. retains control over the unused materials because it can use them in a contract with another
customer. The contract price is ₱20M. How much is the revenue recognized in 20x1?
a. 7,600,000
b. 12,000,000
c. 8,200,000
d. 11,600,000
16. On January 1, 20x1, ABC Co. enters into a contract with a customer for the construction of a building. The contract
price is ₱1,000,000. The following are the transactions during 20x1:
• At contract inception, the customer makes an advance payment of ₱100,000 as facilitation fee.
• ABC Co. incurs total contract costs of ₱300,000 during the period.
• The estimated costs to complete as of year-end amounts to ₱500,000.
• ABC Co. collects the billing, net of 10% retention by the customer to be used to rectify any unsatisfactory work
determined at the completion of the contract.
How much is the gross profit earned from the contract in 20x1?
a. 75,000
b. 82,000
c. 375,000
d. 482,000
Use the following information for the next three cases (three questions per case):
In 20x1, ABC Co. enters into a construction contract with a customer. The contract price is ₱10,000,000. Information
on the contract follows:
20x1
20x2
20x3
Costs incurred to date
2,400,000
4,500,000
6,000,000
5
Estimated costs to complete
3,600,000
1,500,000
-
Case #1:
At contract inception, ABC Co. assesses its performance obligations in the contract and concludes that it has a single
performance obligation that is satisfied over time. ABC Co. determines that the measure of progress that best depicts
its performance on the contract is “cost-to-cost” method.
17. How much is the revenue recognized in 20x1?
a. 4,200,000
b. 4,000,000
c. 2,800,000
d. 3,500,000
18. How much is the cost of construction recognized as expense in 20x2?
a. 2,100,000
b. 2,400,000
c. 3,800,000
d. 1,500,000
19. How much is the gross profit recognized in 20x3?
a. 1,000,000
b. 1,500,000
d. 2,800,000
c. 2,100,000
Case #2:
At contract inception, ABC Co. assesses its performance obligations in the contract and concludes that it has a single
performance obligation that is satisfied over time. However, ABC Co. determines that the outcome of the performance
obligation cannot be reasonably measured but expects to recover the contract costs incurred.
20. How much is the revenue recognized in 20x1?
a. 4,200,000
b. 4,000,000
c. 2,400,000
d. 0
21. How much is the cost of construction recognized as expense in 20x2?
a. 2,100,000
b. 2,400,000
c. 3,800,000
d. 0
22. How much is the gross profit recognized in 20x3?
a. 5,500,000
b. 1,500,000
d. 2,100,000
c. 4,000,000
Case #3:
At contract inception, ABC Co. assesses its performance obligations in the contract and concludes that it has a single
performance obligation.
In its determination of the satisfaction of the performance obligation, ABC Co. identifies that, during the construction
period, ABC Co. retains control over the asset created in the contract. This precludes the customer from
simultaneously receiving and consuming the benefits provided by ABC Co.’s performance as ABC Co. performs.
Moreover, the asset created in the contract has an alternative use to ABC Co. because, in case the contract is
cancelled, ABC Co. retains ownership over any asset created and can direct that asset for another use without
significant modification or cost. Accordingly, ABC Co. concludes that the performance obligation is satisfied at a point
in time.
ABC Co. determines the point in time when the performance obligation is satisfied using the principles in PFRS 15
and concludes that the performance obligation is satisfied only when the construction is completed and the control
over the promised good is transferred to the customer.
23. How much is the revenue recognized in 20x1?
a. 4,200,000
b. 4,000,000
c. 2,400,000
d.0
24. How much is the cost of construction recognized as expense in 20x2?
a. 2,100,000
b. 2,400,000
c. 3,800,000
d. 0
25. How much is the gross profit recognized in 20x3?
a. 5,500,000
b. 1,500,000
d. 2,100,000
c. 4,000,000
26. ABC Co. started work on two separate projects during 20x1. Information on these projects is shown below:
Project
A
B
Contract price
9,000,000
8,000,000
Costs incurred
4,000,000
5,000,000
Estimated costs to
complete
2,000,000
-
Progress billings
5,000,000
8,000,000
How much is the total balance of the “construction in progress” accounts as of December 31, 20x1 under percentage
of completion method?
6
a. 4,000,000
b. 6,000,000
c. 14,000,000
d. 0
27. State the correct sequence of the following steps of revenue recognition under PFRS 15.
I.
Determine the transaction price
II.
Recognize revenue when (or as) the entity satisfies a performance obligation
III.
Identify the performance obligations in the contract
IV.
Allocate the transaction price to the performance obligations in the contract
V.
Identify the contract with the customer
a. V, IV, II, I, III
b. V, III, I, IV, II
c. V, I, IV, III, II
d. V, I, III, IV, II
28. You are an accountant. Your client, a franchisor, asked you for an advice regarding the recognition of revenue from
a franchise contract. Your advice to your client would most certainly be based on which of the following standards?
a. FAS No. 45 (US GAAP)
b. PFRS 15
c. PAS 15
d. PFRS 18
29. The consideration received from a contract with a customer that does not meet the criteria under ‘Step 1’ of PFRS
15 is
a. recognized as liability.
b. recorded through memo entry only.
b. disclosed only.
d. b and c
30. Entity A enters into a franchise contract with Customer X. The agreement provides Customer X the right to access
Entity A’s intellectual property. How should Entity A recognize revenue from the franchise agreement?
a. over time, as Customer X receives and consumes the benefit from Entity A’s performance of providing access
to its intellectual property.
b. at a point in time when Entity A transfers control over the promised license to Customer X.
c. a or b as a matter of an accounting policy choice
d. when there is “substantial performance” by Entity A in accordance with US GAAP.
Use the following information for the next two cases:
On December 31, 20x1, Entity A enters into a contract with Customer X to transfer a license for a fixed fee of
₱100,000 payable as follows:
• 20% is payable upon signing of contract.
• 80% is represented by a note receivable collectible in 4 equal annual installments starting December 31, 20x2.
The appropriate discount rate is 12%.
Case #1:
31. The license provides Customer X the right to use Entity A’s patented processes. Customer X continues to operate
using its trade name and has the discretion of developing a new product name for the products it will produce using
the patented processes. The license does not explicitly require Entity A to undertake activities that will significantly
affect the intellectual property to which Customer A has rights. Neither does Customer X expect that Entity A will
undertake such activities. Entity A grants the license to Customer X on December 31, 20x1. How much revenue
from the franchise contract will Entity A recognize in 20x1?
a. 80,747
b. 21,187
c. 20,000
d. 0
Case #2:
32. The license provides Customer X the right to use Entity A’s patented processes. The agreement requires Customer
X to discontinue using its trade name and instead use Entity A’s trade name. Customer X is bound by the terms of
the contract to abide with Entity A’s policies on the use of the processes but is given the right to any subsequent
modifications to the processes. How much revenue from the franchise contract will Entity A recognize in 20x1?
a. 80,747
b. 20,187
c. 20,000
d. 0
33. PFRS 15 requires how many steps in recognizing revenue from contracts with customers?
a. 2
b. 3
c. 5
d. 7
34. If the promise to transfer a license is distinct,
a. the entity treats all the promises in the contract as a single performance obligation.
b. the entity applies the general principles of PFRS 15 to determine whether the performance obligation is satisfied
over time or at a point in time.
c. the entity applies the specific principles of PFRS 15 to determine the nature of the entity’s promise to transfer
the license as either a “right to access” or a “right to use” the entity’s intellectual property.
d. b and c
35. According to PFRS 15, if the nature of the entity’s promise to grant franchise rights in a franchise agreement is to
provide the franchisee the right to use the entity’s intellectual property as it exists at the point in time at which the
license is granted, the initial franchise fee is recognized as revenue
7
a. when there is substantial performance which is indicated by the commencement of the franchisee’s business
b. at a point in time when the franchise rights are transferred to the franchisee and the franchisee obtains the
ability to use those rights
c. over time, throughout the license period, starting from the time the franchise rights are transferred to the
franchisee and the franchisee obtains the ability to use those rights
d. b or c depending on the substance of the agreement
36. If a franchise contract requires the franchisor to undertake activities that would affect the franchisor’s intellectual
property to which the franchisee has rights, the performance obligation is satisfied
a. at a point in time
c. under time
b. over time
d. anytime
37. Which of the following does not indicate that the nature of an entity’s promise to transfer a license is to provide the
customer the right to access the entity’s intellectual property as it exists throughout the license period?
a. The intellectual property to which the customer has rights changes throughout the license period.
b. The entity continues to be involved with its intellectual property
c. The contract requires, or the customer reasonably expects, that the entity will undertake activities that
significantly affect the intellectual property to which the customer has rights and the customer is exposed to any
positive or negative effects of those activities.
d. The customer can direct the use of, and obtain substantially all of the remaining benefits from, the license at the
point in time at which the license is granted.
38. Entity A enters into a franchise contract with Customer X. The agreement provides Customer X the right to use
Entity A’s intellectual property. How should Entity A recognize revenue from the franchise agreement?
a. over time, as the customer receives and consumes the benefit from Entity A’s performance of providing access
to its intellectual property to Customer X.
b. at a point in time when Entity A transfers control over the promised license to Customer X.
c. a or b as a matter of an accounting policy choice
d. when there is “substantial performance” by Entity A in accordance with US GAAP.
39. On January 1, 20x1, ABC Co. enters into a contract with a customer to transfer a license.
• The initial franchise fee is ₱100,000 payable as follows: 20% cash down payment upon signing of the contract
and the balance is payable in 4 equal annual installments starting December 31, 20x1. The appropriate discount
rate is 12%.
• The contract also requires ABC Co. to transfer equipment to the customer. The equipment has a cost of ₱30,000
and a stand-alone selling price of ₱40,000.
• The license has a stand-alone selling price of ₱38,000.
• ABC Co. regularly sells the license and the equipment separately.
• The license provides the customer the right to use the entity’s intellectual property as it exists at the point in
time at which the license is granted.
• The equipment is transferred to the customer on January 15, 20x1 while the license is transferred to the
customer on February 1, 20x1.
How much revenue is recognized on February 1, 20x1?
a. 80,747
b. 41,409
c. 39,338
d. 0
On December 1, 20x1, CANOROUS Co. granted a 5-year franchise right to MELODIOUS, Inc. for an initial franchise
fee of ₱400,000. The non-refundable initial franchise fee was collected in full upon signing of the contract. As of
December 31, 20x1, CANOROUS has no remaining obligation or intent to refund any of the cash received, all of the
services pertaining to pre-opening activities to set-up the contract have been performed and there are no other
material conditions or obligations required of CANOROUS under the franchise agreement.
40. If the promise to grant the franchise right is not distinct, how should CANOROUS account for the transaction?
a. CANOROUS should use only the general principles of PFRS 15 to determine whether the performance
obligation is satisfied over time or at a point in time.
b. CANOROUS should use the general principles of PFRS 15 first then the specific principles to determine whether
the grant of license provides the customer the right to access or the right to use the intellectual property granted.
c. CANOROUS should use only the specific principles of PFRS 15
d. CANOROUS should use the old GAAP (FAS No. 45), i.e., “substantial performance.”
41. If the promise to grant the franchise right is not distinct and that the performance obligation is satisfied at a point in
time, how much revenue shall CANOROUS recognize in December 20x1?
a. 400,000
b. 0
c. 80,000
d. None of these
42. If the promise to grant the franchise right is distinct and that the grant of franchise provides the customer the right
to use the entity’s intellectual property, how much revenue shall CANOROUS recognize in December 20x1?
8
a. 400,000
b. 0
c. 80,000
d. 6,667.67
43. If the promise to grant the franchise right is distinct and that the grant of franchise provides the customer the right
to access the entity’s intellectual property, how much revenue shall CANOROUS recognize in December 20x1?
a. 400,000
b. 0
c. 80,000
d. 6,667.67
Use the following information for the next two questions:
On January 1, 20x1, Franchisor Co. enters into a contract with Franchisee Co. The franchise contract gives
Franchisee Co. the right to use Franchisor’s trade name and the right to sell Franchisor’s products for a period of 4
years. The franchise requires payment of an upfront fee of ₱1,000,000, payable at contract inception, and 5% of future
sales of the products, payable at each month-end.
The franchise contract requires Franchisor Co. to undertake activities that would further improve its brand and its
products, to which Franchisee Co. has rights, by continuously undertaking research and development projects and
marketing and promotional activities. Although those activities do not result in the transfer of a good or a service to
Franchisee Co. as those activities occur, it is expected that Franchisee Co. will benefit from those activities.
All of the necessary preparations were completed, and TIPPLE Co. started operations, on January 31, 20x1.
44. How should Franchisor Co. recognize revenue from the ₱1,000,000 initial franchise fee?
a. Recognize the ₱1,000,000 initial franchise fee as revenue in full on January 1, 20x1.
b. Recognize the ₱1,000,000 initial franchise fee as revenue in full on January 31, 20x1.
c. Recognize the ₱1,000,000 initial franchise fee as revenue throughout the license period.
d. Any of the above, as a matter of accounting policy choice.
45. How should Franchisor Co. recognize revenue from the 5% of sales continuing franchise fee?
a. Franchisor Co. shall estimate the variable consideration and amortize it as revenue over the license period.
b. Franchisor Co. shall estimate the variable consideration, subject the estimate to the “Constraining estimates of
variable consideration” principle of PFRS 15 and amortize it as revenue over the license period.
c. Franchisor Co. shall discount the amount determined in Choice (b) above and amortize it as revenue over the
license period.
d. Franchisor Co. shall recognize revenue equal to 5% of Franchisee’s sales as and when those sales occur.
46. Direct cost of franchise incurred by a franchisor that are within the score of PFRS 15 are recognized as expense
using the
a. Matching concept
c. effective interest method
b. b. immediate recognition principle
d. concept of conservatism or prudence
47. On November 1, 2018, Fallacious Co. obtained franchise rights from Misleading Co. The initial franchise fee
included consideration for inventory and equipment to be delivered to Fallacious. All of the necessary preparations
were completed and Fallacious co. started operations, on January 31, 2019. The inventory and equipment were
delivered to Fallacious on December 1, 2018. How would misleading Co. recognize revenue for the supply of
inventory and equipment?
a. Recognize in full on November 1, 2018
b. Recognize in full on December 1, 2018
c. Recognize in full on January 31, 2019
d. Deferred and amortize over the franchise term starting January 31, 2019
48. The third step in the recognition of revenue under PFRS 15 is to identify the contract with the customer. True or
False
49. If the intellectual property to which the customer has rights will change over the license period because the entity
continues to be involved with its intellectual property, the nature of entity’s promise to transfer the license is most
likely a “right to use”. True or False
50. If the nature of an entity’s promise to transfer a license is to provide the customer the right to use the entity’s
intellectual property as it exists at the point at which the license is granted, revenue from the franchise contract
shall be recognized at the point in time when the license is transferred to the customer. True or False
***END OF FINAL EXAMIANATION***
9
Bonus Questions:
51. A and B agreed to form a partnership. The contributions of the partners are as follows:
A
Cash
Inventory
Land
Equipment
B
600,000
20,000
400,000
50,000
Additional information:
• Half of the inventory is unpaid. The partnership agreed to assume the related accounts payable.
• The land has a fair value of ₱700,000 and is subject to a mortgage of ₱100,000. However, B agreed to settle the
mortgage personally.
How much are the adjusted capital contributions of A and B, respectively?
a. 670,000; 690,000
c. 670,000; 700,000
b. 660,000; 700,000
d. 670,000; 600,000
52. A and B formed a partnership. The partnership agreement stipulates the following:
• Annual salary allowances of ₱80,000 for A and ₱40,000 for B.
• The partners share in profits and losses equally.
The partnership earned profit of ₱100,000. How much is the share of B?
a. 70,000
c. 48,000
b. 30,000
d. 52,000
53. A and B formed a partnership. The partnership agreement stipulates the following:
• Annual salary allowances of ₱10,000 for A and ₱40,000 for B.
• Bonus to A of 10% of the profit after partner’s salaries but before bonus.
• The partners share profits and losses on a 60:40 ratio.
During the period the partnership incurred a loss of ₱20,000 before deduction for salaries. By what amount did B’s
capital account change?
a. Increased by ₱12,000
c. Increased by ₱32,000
b. Decreased by ₱12,000
d. Decreased by ₱32,000
54. A and B decided to liquidate their partnership business. The statement of financial position of the business shows
the following information:
Assets
100,000
Liabilities
20,000
A, Capital (50%)
40,000
B, Capital (50%)
40,000
The partners were able to convert all assets into ₱90,000 cash. How much did B receive from the final settlement of his
interest?
a. 30,000
c. 28,000
b. 35,000
d. 36,667
55. Partners A, B and C decided to liquidate their partnership. A summary of the partnership’s statement of financial
position is shown below:
Cash
Noncash assets
Total
50,000
1,200,000
1,250,000
Accounts payable
Payable to A
A, Capital (40%)
B, Capital (40%)
C, Capital (20%)
Total
100,000
50,000
400,000
450,000
250,000
1,250,000
10
Three-fourths (3/4) of the noncash assets were sold for ₱920,000. The partnership paid ₱5,000 transaction costs on
the sale. How much cash did C receive from the settlement of the partners’ interests?
a. 163,000
c. 193,000
b. 186,000
d. 206,000
Partners A, B and C decided to liquidate their partnership. A summary of the partnership’s statement of financial position
is shown below:
Cash
Noncash assets
Total
50,000
1,200,000
1,250,000
Accounts payable
Payable to A
A, Capital (50%)
B, Capital (30%)
C, Capital (20%)
Total
100,000
50,000
540,000
360,000
200,000
1,250,000
56. If a cash priority program is prepared, which partner is paid first and how much is the total payments to that partner
before all partners will share on the available cash based on their profit or loss ratios?
a. A, ₱20,000
c. B, ₱96,000
b. B, ₱90,000
d. B, ₱60,000
57. Three-fourths (3/4) of the noncash assets were sold for ₱920,000. The partnership paid ₱5,000 transaction costs
on the sale. How much cash did A receive from the settlement of the partners’ interests under the cash priority
program?
a. 447,500
c. 493,500
b. 386,500
d. 306,500
58. Bye-bye Corporation is undergoing liquidation. Relevant information as of January 1, 20x1 is shown below:
ASSETS
Cash
Accounts receivable
Equipment - net
Land
TOTAL ASSETS
LIABILITIES
Accounts payable
Salaries payable
Notes payable
Loan payable
Total liabilities
EQUITY
Share capital
Deficit
Carrying amounts
200,000
500,000
600,000
1,000,000
2,300,000
Net realizable values
200,000
450,000
150,000
1,300,000
2,100,000
700,000
800,000
500,000
750,000
2,750,000
700,000
800,000
500,000
750,000
2,750,000
1,000,000
(1,450,000)
Capital deficiency
(450,000)
TOTAL LIABILITIES & EQUITY
2,300,000
Additional information:
• Administrative expenses expected to be incurred during the liquidation process is ₱180,000.
• The equipment is pledged as collateral security for the notes payable.
• The land is pledged as collateral security for the loan payable.
Assuming all the assets were sold, and all the liabilities were settled, equal to their realizable values, how much would
Mr. A, an unsecured non-priority creditor, would expect to receive from his ₱500,000 claim from Bye-bye Corporation?
a. 98,312.24
b. 104,761.90
11
c. 130,912.34
d. 214,711,24
A, B, and C formed a joint operation. The joint operators shall make initial contributions ₱40 each. Profit and loss shall
be divided equally. The following data relate to the joint operation’s transactions:
A
B
C
Joint operation
32 Cr.
40 Cr.
48 Cr.
Expenses paid from JO cash
20
8
12
Value of inventory taken
20
24
16
59. How much is the joint operation’s sales?
a. 280
b. 40
c. 80
d. 76
60. How much is the cash settlement to B?
a. ₱80 receipt
b. ₱80 payment
c. ₱32 receipt
d. ₱76 receipt
Trumpet Co. consigned eight heavy machineries to Cold Breeze Co. Each machine costs ₱1,000,000 and has a
suggested retail price of ₱2,100,000. Trumpet paid ₱200,000 in transporting the machines to the consignee’s place of
business. At the end of the period, Cold Breeze reported three unsold machines and remitted the collections on sales
during the period, after deducting the following:
Commission (based on sales net of commission)
20%
Finder’s fee (based on commission)
5%
Delivery, installation and testing (on each unit sold)
₱50,000
Materials generated from the testing were sold for ₱5,000 and included in the remittance to Trumpet Co.
61. How much profit is earned by the consignor from the sale?
a. 3,292,500
b. 5,375,000
c. 1,025,000
d. 3,412,500
62. How much was the net remittance to the consignor?
a. 9,182,500
b. 8,417,500
c. 8,850,500
d. 7,891,500
63. How much is the cost of the unsold machineries?
a. 3,075,000
b. 2,987,000
c. 1,025,000
d. 1,000,000
64. RIBALD OFFENSIVE Co. uses the installment method. On December 31, 20x3, RIBALD Co.’s records show the
following balances:
Deferred gross profit (before year-end adjustments)
2,252,000
Installment receivable - 20x2
960,000
Installment receivable - 20x3
2,400,000
Gross profit rate in 20x2 is 24% based on sales while gross profit rate in 20x3 is 33 1/3% based on cost.
How much is the realized gross profit in 20x3?
a. 982,600
b. 1,014,200
c. 1,291,600
d. 1,421,600
The following information was taken from the records of a branch:
12
Sales by branch
Billings to branch by home office
Operating expenses
Ending inventory at billed price
2,800,000
2,500,000
400,000
1,000,000
The following information was taken from the records of the home office:
Branch current account
Shipments to branch
Allowance for markup - Unadjusted
65. What is the billing rate based on cost?
a. 20%
b. 25%
c. 120%
d. 125%
66. What is markup percentage based on cost?
a. 20%
b. 25%
c. 120%
d. 125%
2,600,000
2,000,000
500,000
67. How much is the sales of branch to be included in the combined financial statements?
a. 2,800,000
b. 2,240,000
c. 2,333,333
d. 0
68. How much is the realized markup of the branch?
a. 300,000
b. 240,000
c. 380,000
d. 270,000
69. How much is the cost of goods sold of the branch to be included in the combined financial statements?
a. 1,500,000
b. 1,800,000
c. 1,200,000
d. 900,000
70. How much is the ending inventory of the branch to be included in the combined financial statements?
a. 1,000,000
b. 8333,333
c. 1,250,000
d. 800,000
**END OF BONUS QUESTIONS**
13