Accounting Lessons with BCSV
PFRS 15 – Revenue from Contracts with Customers
Problem 1: (Determining Transaction Price)
Presented below are three revenue recognition situations.
a) Alex sells good to Luis for P1,000,000, payment due at delivery.
b) Alex sells good on account of Levi for P800,000, payment due in 30 days.
c) Alex sells goods to Chris for P1,000,000 on January 1 of the current year. Payment terms are as follows:
• 10% down payment at date of sale.
• The remaining balance is due in two equal installments: the first installment will be due at the end of the current
year and the second instalment will be due at the end of the subsequent year. (assume an effective rate of
12%) (Round off present value factor to two decimal places).
Required: Indicate the transaction price for each of these transactions and when revenue will be recognized.
Problem 2:
PLDC, Inc. agrees to sell to a customer voice minutes over a period of twelve months. Under the contract, the customer
shall pay P0.40 per minute for the first 10,000 minutes. If the minutes purchased exceeded 10,000 minutes but not
exceeding 15,000 minutes, then the price falls to P0.30 per minute for all minutes purchased. If the minutes purchased
exceeded 15,000 minutes, then the price falls to P0.20 per minute for all minutes purchased. In effecting the agreement,
the price shall be adjusted retrospectively.
Based on PLDC’s experience with similar contracts, it estimates the following outcome:
Less than 10,000 minutes
10,000 minutes to 15,000 minutes
Exceeding 15,000 minutes
60%
30%
10%
What is the transaction price per minute under the probability weighted expected value approach?
Problem 3:
I.
Alpha Co. sells golf clubs and, with each sale of a full set of clubs, provides complementary club-fitting services.
A full set of clubs with the fitting services sells for P15,000. Similar club-fitting services are offered by other
vendors for P1,100, and Alpha Co. generally charges approximately 10% more than do other vendors for similar
services. Estimate the stand-alone selling price of the club-fitting services using the adjusted market
assessment approach.
II.
Alpha Co. sells golf clubs and with each sale of a full set of clubs provides complementary club-fitting services.
A full set of clubs with the fitting services sells for P15,000. Alpha Co. estimates that it incurs P600 of staff
compensation and other costs to provide the fitting services, and normally earns 30% over cost on similar
services. Assuming that the golf clubs and the club fitting services are separate performance obligations,
estimate the stand-alone selling price of the club-fitting services using the estimated cost plus margin
approach.
III.
Alpha Co. sells golf clubs, and with each sale of a full set of clubs provides complementary club-fitting services.
A full set of clubs with the fitting services sells for P15,000. Alpha Co. sells the same clubs without the fitting
service for P14,000. Assuming that the golf clubs and the club-fitting services are separate performance
obligations, estimate the stand-alone selling price of the club fitting services using the residual approach.
Problem 4:
MACROSOFT Company sold a product to a customer for P100,000 on December 1, 2020. The product was previously
purchased by MACROSOFT from a wholesaler for P60,000.
1.
2.
3.
4.
5.
Identify the contract with the customer.
Identify the separate performance obligations within the contract.
Determine the transaction price.
Allocate the transaction price to the separate performance obligations.
Recognize revenue when (or as) each performance obligation is satisfied.
Problem 5:
FHM, Inc. (Food Hub Magazine), sells magazines on a 6-month or 12-month subscription basis. The magazine will be
delivered at the doorstep of the customer every month commencing the month after the month of payment. On November
10, 2020, a customer paid P18,000 for a 6-month subscription of FHM magazines.
1.
2.
3.
4.
5.
Identify the contract with the customer.
Identify the separate performance obligations within the contract.
Determine the transaction price.
Allocate the transaction price to the separate performance obligations.
Recognize revenue when (or as) each performance obligation is satisfied.
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Problem 6: (Allocation of Transaction Price to Separate Performance Obligations)
On January 1, 2021, Global Tech 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
Tech has determined that each good or service is a separate performance obligation. The software license grants the user
the right to use the Global Tech software. Global Tech sells the license, installation, updates and technical support separately
at the following selling prices:
Software license
Installation service
Software updates and technical support
Total
P9,000,000
3,600,000
5,400,000
18,000,000
1. How much is the transaction price?
2. How much of the transaction is allocated to each performance obligations, respectively?
3. How much is the revenue of Global Tech Co. for the year 2021?
Problem 7: (More than one Performance Obligation)
Samsing, Inc., a telecommunication company, entered into a contract with a customer on March 1, 2021. As per the
contract, the customer subscribes for Samsing’s monthly plan for 12 months and in return, the customer receives a free
Samsing iPhone from Samsing. The customer will pay a monthly fee of P10,000. The customer gets the Samsing iPhone
immediately on the day of subscription.
Samsing sells the same iPhone for P36,000 and the same monthly plans for P8,000 per month without the iPhone.
1.
2.
3.
4.
5.
6.
How many performance obligations are there in the contract?
How much is the transaction price?
How much of the transaction price was allocated to each performance obligations?
Provide the journal entry on March 1, 2021.
Provide the journal entry on March 31, 2021.
For the year 2021, total revenue of Samsing Inc. amounts to…
Problem 8:
On January 1, 2021, Samurai Co. enters into a contract with Jack Corp. for the sale of two products, Product A and Product
B, for P700,000 each. The contract requires Product A to be delivered on February 1, 2021 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, 2021.
1. Prepare the required journal entry on January 1, 2021.
2. Prepare the required journal entry on February 1, 2021.
3. Prepare the required journal entry on June 1, 2021.
Problem 9:
On March 1, 2021. Rhapsody Co. enters into a contract to transfer a product to a customer on July 31, 2021. It is agreed
that the customer will pay the full price of P20,000 in advance on April 1, 2021. However, the customer actually paid on
April 30, 2021 and Rhapsody delivers the product on July 31, 2021. The cost of the product is P15,000.
Case 1: The contract is cancelable.
1. Prepare the required journal entry
2. Prepare the required journal entry
3. Prepare the required journal entry
4. Prepare the required journal entry
on March 1, 2021.
on April 1, 2021.
on April 30, 2021.
on July 31, 2021.
Case 2: The contract is non-cancelable.
1. Prepare the required journal entry
2. Prepare the required journal entry
3. Prepare the required journal entry
4. Prepare the required journal entry
on March 1, 2021.
on April 1, 2021.
on April 30, 2021.
on July 31, 2021.
Problem 10: (Sale with Right of Return)
Mist Parfum, Inc., sold 3,210 boxes of white musk ladies soap during January of 2021 at the price of P90 per box. The
company offers a full refund for any product returned within 30 days from the date of purchase. Based on historical
experience, Aria expects that 3% of sales will be returned. How much revenue should Mist Parfum recognize in
January?
Problem 11: (Sale with Right of Return)
SEEDLINGS Company is presently testing a number of new agricultural seeds that it has recently harvested. To simulate
interest, it has decided to grant to five of its largest customers the unconditional right to return to these products if not
fully satisfied. The right to return extends for 4 months. SEEDLINGS sells these seeds on account for P3,000,000 (cost
P1,600,000) on January 2, 2021. Customers are required to pay the full amount due by March 15, 2021.
Required:
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1. Prepare the journal entry for SEEDLINGS Company at January 2, 2021, assuming SEEDLINGS estimates returns of
20% based on prior experience.
2. Assume that one customer returns the seeds on March 1, 2021, due to unsatisfactory performance. Prepare the
journal entry to record this transaction, assuming this customer purchased P200,000 of seeds from SEEDLINGS.
3. Briefly describe the accounting for these sales if SEEDLINGS is unable to reliably estimate returns.
ANSWERS:
1.
January 2, 2021
Accounts Receivable .................................................... 3,000,000
Allowance for sales returns (P3,000,000 X 20%) ................
Sales Revenue .................................................................
Estimated Inventory Returns ...................................
320,000*
Cost of Goods Sold ...................................................... 1,280,000
Inventory ........................................................................
* (20% X P1,600,000)
600,000
2,400,000
1,600,000
2.
March 1, 2021
Allowance for sales returns ............................................. 200,000
Accounts Receivable ........................................................
200,000
Inventory ...............................................................
106,667*
Estimated Inventory Returns ............................................
106,667
* (P1,600,000 ÷ P3,000,000) x P200,000
Companies record the returned asset in a separate account from inventory to provide transparency.
3.
If SEEDLINGS is unable to estimate returns, it defers recognition of revenue until the return period expires on May 2,
2021.
Problem 12: (Non-refundable upfront fees)
BIG SMOKE signs a 1-year contract with Anywhere Fitness. The terms of the contract specify that BIG SMOKE is required
to pay a non-refundable initiation fee of P14,400 and an annual membership fee of P3,600 per month. Anywhere Fitness
determines that its customers, on average, renew their annual membership two times before terminating their membership.
Required:
1. Determine the amount of the transaction price.
2. Determine how much revenue per month shall be reported.
END OF HANDOUT
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