ADVANCED ACCOUNTING

IFRS 15

1. To address inconsistencies and weaknesses, a comprehensive revenue recognition

model was developed entitled the:

A. Revenue Recognition Principle

B. Principle-based Revenue Accounting
C. Rules-based Revenue Accounting
D. Revenue from Contracts with Customers

2. The converged standard on revenue recognition

A. Reduces the number of disclosures required for revenue reporting

B. Increases the complexity of financial statement preparation
C. Recognizes and measures revenue based on changes in assets and liabilities
D. Simplifies revenue recognition practices across entities and industries

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3. Arrange following steps in revenue recognition process to the proper order:

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I. Determine the transaction price
II. Identify the contract with the customer

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III.
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Allocate the transaction price to the separate performance obligations
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IV. Identify the separate performance obligations in the contract
V. Recognize revenue when each performance obligation is satisfied

A. II, I, IV, III, V

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B. IV, II, I, III, V

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C. II, IV, I, III, V

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D. II, IV, III, I, V

4. Revenue from a contract with a customer

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A. Is recognized when the customers receive the rights to receive consideration

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B. Is recognized even if the contract is still wholly unperformed

C. Can be recognized even when a contract is still pending
D. Cannot be recognized until a contract exists
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5. Signing of the contract by the two parties is

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A. Not recorded until one or both parties perform under the contract
B. Recorded at the time the contract is approved by both parties
C. Not recorded until both parties perform under the contract
D. Recorded immediately after the contract is signed

6. A contract:

A. Must be in writing to be an enforceable contract

B. Is an agreement that creates enforceable rights and obligations
C. Is enforceable if each party can unilaterally terminate the contract
D. Does not need to have commercial substance

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 7. On January 15, 2015, AA Company enters into a contract to build custom equipment for
BB Company. The contract specified a delivery date of March 1. The equipment was not
delivered until March 31. The contract required full payment of P150,000 30 days after
delivery. This contract should be:

A. Recorded on January 15, 2015

B. Recorded on March 1, 2015
C. Recorded on March 31, 2015
D. Recorded on April 30, 2015

8. CC Computers manufactures and sells pagers and radio paging systems which include a
180-day warranty on product defects. It also sells an extended warranty which provides
an additional two years of protection. On May 10, it sold a paging system for P4,620 and
an extended warranty for another P1,440. The journal entry to record this transaction
would include:

A. A credit to service revenue of P6,060

B. A credit to service revenue of P1,440
C. A credit to sales of P4,620 and a credit to service revenue of P1,440

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D. A credit to unearned service revenue of P1,440

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9. DD Inc. manufactures and sells stereo systems that include an assurance-type warranty
for the first 90-days. DD also offers an optional extended coverage plan under which it

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will repair or replace any defective part for 2 years beyond the expiration of the
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assurance-type warranty. The total transaction price for the sale of the stereo system and
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the extended warranty is P3,600. The standalone price of each is P2,760 and P960,
respectively. The estimated cost of the assurance warranty is P420. The accounting for
warranty will include a:
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A. Debit to Warranty Expense, P920

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B. Debit to Warranty Liability, P420

C. Credit to Warranty Liability, P960
D. Credit to Unearned Warranty Revenue, P960
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10. On July 31, EE Company contracted to have two products built by FF Company for a
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total of P222,000. The contract specifies that payment will only occur after both products
have been transferred to EE Company. EE determines that the standalone prices are
P120,000 for Product 1 and P102,000 for Product 2. On August 1, when product 1 has
been transferred, the journal entry to record this event include a:
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A. Debit to accounts receivable for P120,000

B. Debit to accounts receivable for P102,000
C. Debit to contract assets for P102,000
D. Debit to contract assets for P120,000

11. GG Builders enters into a contract with a customer to build a warehouse for P1,020,000
on March 30, 2015 with a performance bonus of P60,000 if the building is completed by
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 July 31, 2015. The bonus is reduced by P12,000 each week that completion is delayed.
GG Builders commonly includes these completion bonuses in its contract and based on
prior experience, estimates the following completion outcomes:

Completed by: Probability

July 31, 2015 65%
August 7, 2015 25%
August 14, 2015 5%
August 21, 2015 5%

The transaction price for this is:

A. P1,074,000
B. 1,020,000
C. 663,000
D. 702,000

12. On June 1, 2015, HH Company sold equipment to II Company. In exchange for a zero-
interest bearing note with a face value of P66,000, with payment due in 12 months. The

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fair value of the equipment on the date of sale was P60,000. The amount of revenue to
be recognized on this transaction in 2015 is:

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A. P66,000

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B. 6,000 rs e
C. 60,000
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D. 60,000 sales revenue and 3,500 interest revenue

13. JJ Auto Parts sells parts to KK Car Repair during 2015. JJ offers rebates of 2% on
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purchases up to P36,000 and 3% on purchases above P36,000 if the customers’

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purchases for the year exceed P120,000. In the past, KK normally purchases P180,000
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in parts during a calendar year. On March 25, 2015, KK Car Repair purchased P44,400
of parts. The journal entry to record the sale includes a:

A. Debit to accounts receivable for P44,400

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B. Debit to accounts receivable for P43,512

C. Credit to sales revenue for P43,068
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D. Credit to sales revenue for P43,512

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14. Zuellig Pharmaceuticals entered into a licensing agreement with Janitor Lab for a new
drug under development. Zuellig will receive P8,100,000 if the new drug receives BFAD
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approval. Based on prior approval, Zuellig determines that it is P85% likely that the drug
will gain approval. The transaction price of this arrangement should be:

A. P8,100,000
B. 6,885,000
C. 1,215,000
D. P0 until approval is received

15. XX Company is a full-service technology company. They provide equipment, and

installation services as well as training. Customers can purchase any product or service
separately or as a bundled package. YY Corporation purchased computer equipment,

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 installation and training for a total cost of P144,000 on March 15, 2014. Estimated
standalone fair values of the equipment, installation and training are P90,000, P60,000
and P30,000, respectively. The transaction price allocated to equipment, installation and
training is:

A. P90,000, P60,000 and P30,000, respectively

B. 48,000 each
C. 144,000 for the entire bundle
D. 72,000, 48,000 and 24,000, respectively

16. XX Company is a full-service technology company. They provide equipment, and

installation services as well as training. Customers can purchase any product or service
separately or as a bundled package. YY Corporation purchased computer equipment,
installation and training for a total cost of P144,000 on March 15, 2014. Estimated
standalone fair values of the equipment, installation and training are P90,000, P60,000
and P30,000, respectively. The journal entry to record the transaction on March 15, 2014
will include a:

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A. Credit to sales revenue for P144,000

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B. Debit to unearned service revenue of 30,000

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C. Credit to unearned service revenue of 24,000

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D. Credit to service revenue of 60,000

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17. Swimming Pool Company sells all fabricated pools that cost P120,000 to customers for
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P216,000. The sales price includes an installation fee, which is valued at P30,000. The
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fair value of the pool is P192,000. The installation is considered a separate performance
obligation and is expected to take 3 months to complete. The transaction price allocated
to the pool and the installation is:
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A. P186,811 and P29,119, respectively

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B. P192,000 and P30,000, respectively

C. P216,000 and P30,000, respectively
D. P166,054 and P25,946, respectively
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18. Taster’s Choice sells natural supplements to customers with an unconditional right of
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return if they are not satisfied. The right of returns extends 60 days. On February 10,
2014, a customer purchases P3,600 of products (cost P1,800). Assuming that based on
prior experience, estimated returns are 20%, the journal entry to record the sale and cost
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of goods sold includes a:

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A. Debit to cash and a credit to sales revenue of P3,600

B. Credit to refund liability of P720 and a credit to Sales Revenue of P2,880
C. Debit to Cost of goods sold and credit to inventory for P1,800
D. Credit to estimated inventory returns of P360

19. Taster’s Choice sells natural supplements to customers with an unconditional right of
return if they are not satisfied. The right of returns extends 60 days. On February 10,
2014, a customer purchases P3,600 of products (cost P1,800). Assuming that based on

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 prior experience, estimated returns are 20%, the journal entry to record the return of
P240 of merchandise includes a:

A. Credit to refund liability for P240

B. Credit to returned inventory for P120
C. Credit to estimated inventory returns for P120
D. Debit to estimated inventory returns for P120

20. Franchise fees should be recognized:

A. On the date the contract was signed

B. On the date the franchise is opened for business
C. On the date the franchise fee is paid to franchisor
D. When performance obligations are satisfied

21. Franchise revenue are recognized over time if:

A. Franchise rights are transferred at a point in time

B. The franchisor is providing access to the right rather than transferring control
C. Performance obligations regarding the franchise rights are completed when the

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franchise opens
D. The franchise fee is payable upon signing of contract

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22. Franchise revenue are recognized over time if:

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A.
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Franchise rights are transferred at a point in time
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B. The franchise fee is payable upon signing of contract
C. Performance obligations regarding the franchise rights are completed when the
franchise opens
D. None of the above
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23. Cerette, Inc. charges an initial franchise fee of P90,000 broken down as follows:
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Rights to trade name, market area, and

proprietary know-how P40,000
Training services 11,500
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Equipment (cost of P10,800) 38,500

Total initial franchise fee P90,000
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Upon signing of the agreement, a payment of P40,000 is due. Thereafter, two annual
payments of P30,000 are required. The credit rating of the franchisee is such that it
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would have to pay interest of 8% to borrow money. The franchise agreement is signed on
August 1, 20x7, and the franchise commences operation on November 1, 20x7.
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Assuming that no further services are required by the franchisor once the franchise
begins operations, the entry on November 1, 20x7 would include:

A. A credit to unearned franchise revenue for P40,000

B. A debit to service revenue for P11,500
C. A debit to sales revenue for P38,500
D. A debit to unearned franchise revenue for P40,000

24. Cerette, Inc. charges an initial franchise fee of P90,000 broken down as follows:

Rights to trade name, market area, and

proprietary know-how P40,000

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 Training services 11,500
Equipment (cost of P10,800) 38,500
Total initial franchise fee P90,000

Upon signing of the agreement, a payment of P40,000 is due. Thereafter, two annual
payments of P30,000 are required. The credit rating of the franchisee is such that it
would have to pay interest of 8% to borrow money. The franchise agreement is signed on
August 1, 20x8, and the franchise commences operation on November 1, 20x8.
Assuming that that the total training fees includes training services for the period leading
up to the franchise opening (P5,500 value) and for 3 months following opening. The
journal entry on August 1, 20x8 would include:

A. A credit to unearned franchise revenue for P11,500

B. A credit to unearned franchise revenue for P6,000
C. A debit to sales revenue for P38,500
D. A debit to unearned franchise revenue for P40,000

25. Xaviery enters into a franchise agreement on December 31, 20x7, giving a franchisee
the rights to operate a Xaviery franchise in Cagayan Valley for five (5) years. Xaviery

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charges an initial franchise fee of P975,000 for the right to operate as a franchisee,

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payable upon signing the contract. The franchisor also receives ongoing royalty

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payments of 7% of the franchisee’s annual sales (payable each January 15 of the

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following year).

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The amount of franchise revenue on December 31, 20x7 amounted to:
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A. Nil
B. 195,000
C. 975,000
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D. 1,043,250
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26. Using the same information in No. 25, the franchise revenue on December 31, 20x8,
franchise begins operations in January 20x8 and records P16,575,000 of revenue for the
year ended December 31, 20x8:
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A. P195,000
B. 1,160,250
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C. 1,355,250
D. 1,755,000
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-end-
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