ACC 109: INTERDMEDIATE ACCOUNTING, PART 4 2ND GRADING PERIOD

REVENUE RECOGNITION AND NCA HELD FOR SALE QUIZ

NAME: ____________________________________________ SCORE:____________________

SECTION: _________________________________________ DATE: ____________________

GENERAL INSTRUCTIONS:
A. TEST PAPER, PENS/PENCIL, CALCULATOR AND DRINKING WATER ARE ONLY ALLOWED
TO BE USED DURING THE TEST. ALL OTHER THINGS MUST BE PLACED IN FRONT OF
THE ROOM.
B. WRITE YOUR ANSWER ON THE SPACE BEFORE EACH NUMBER.
C. STRICTLY NO ERASURES, SUPERIMPOSITIONS, CUTTING OF PAPER, OR ANY OTHER
MEANS IN ALTERING YOUR ANSWER.
D. USE BLACK OR BLUE INK IN WRITING YOUR FINAL ANSWER. ERASABLE INKS ARE
PROHIBITED.
E. NON-COMPLIANCE FOR INSTRUCTIONS A-D WILL GIVE THE STUDENT CORRESPONDING
DEDUCTIONS.
F. TIME ALLOTMENT: 55 MINUTES
G. POINTING SYSTEM: PART I – 1 POINT EACH; PART II – 2 POINTS EACH.

PART I: THEORIES

________1. ABC Co., a seller of concrete aggregates, enters into the following
contracts:
i. A contract with Delta Co. to deliver goods. Payment is due one month after
delivery.
ii. A contract with Echo Co. for the sale of 300 units of each of Products X
and Y. The contract states that the price of Product Y will be
retrospectively reduced by 50% if Echo Co. makes a cumulative purchase of
at least 1,000 units of Product X within 6 months.
iii. A contract with Fafa Co. to deliver goods. At contract inception, Fafa
Co. is broke. ABC Co. expects that it can only collect 50% of the
consideration.
iv. A contract with Gamma Co., an entity which is also engaged in the concrete
aggregates business, to exchange inventory to facilitate sales to
customers in different geographical areas of operations.

Identify the contracts to which PFRS 15 Revenue from Contract with Customers
may not be applied.
a. Delta and Echo c. Fafa
b. Fafa and Gamma d. Gamma

________2. Certain criteria must be met before a contract with a customer is

accounted for under PFRS 15. Which of the following precludes a contract
from being accounted for under PFRS 15?
a. The consideration is collected in advanced
b. The contract is made orally
c. The contract does not result to a change in the risk, timing or amount of
the entity’s future cash flows.
d. The contract is neither oral nor written but rather implied by the
entity’s business practices.

________3. ABC Co. enters into a contract with XYZ, Inc. to deliver 2 apples,
3 mangoes, and 5 potatoes for a total consideration of ₱100. In accounting
for the contract, which of the following is probably not true?
a. ABC Co. identifies three performance obligations in the contract.
b. ABC Co. allocates the ₱100 transaction price over the promises to deliver
the apples, mangoes and potatoes on the basis of relative stand-alone
selling prices of those goods.

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 ACC 109: INTERDMEDIATE ACCOUNTING, PART 4 2ND GRADING PERIOD
REVENUE RECOGNITION AND NCA HELD FOR SALE QUIZ

c. The allocation of the transaction price may result to the identification

of a discount.
d. No revenue is recognized until all of the 2 apples, 3 mangoes and 5
potatoes are delivered even though the 2 apples were delivered first
before the mangoes and potatoes.

________4. ABC Co., a manufacturer and dealer of printing machines, had the
following transactions during the period:
I. ABC Co. receives an order for the manufacture of a customized machine for
a customer. The customer pays half of the consideration at contract
inception. The manufacturing lead time is 1 year. ABC Co. subcontracts a
portion of the manufacturing to XYZ, Inc., another manufacturer.
II. ABC Co. receives an order for a standard machine. Payment is due only
after ABC Co. has delivered and installed the machine. Additionally, the
contract requires ABC Co. to perform free maintenance services over a 3-
month period after the machine is installed. ABC Co. completes the
delivery and installation by the end of the reporting period; however,
the maintenance period is not yet over.
III. ABC Co. receives an order for 2 machines. The first machine is delivered
at contract inception but the second machine will be delivered after two
months. Payment is due only after both machines are delivered. By the end
of the reporting period, the second machine is not yet delivered and the
consideration is not yet collected.

Identify the contracts to which PFRS 15 Revenue from Contract with Customers
may be applied.
a. Contract 1 c. Contracts 1, 2 and 3
b. Contract 3 d. None of these

________5. It is an agreement between two or more parties that creates

enforceable rights and obligations.
a. obligation c. revenue
b. contract d. any of these

________6. According to PFRS 15 Revenue from Contracts with Customers contracts

with customers are
a. written c. implied
b. oral d. any of these

________7. The best evidence for the stand-alone selling price of a good or
service is
a. the list price of the good or service
b. the contractually stated price of the good or service
c. the observable price at which the good or service can be sold separately
under similar circumstances and to similar customers
d. the entity’s estimate of the stand-alone selling price

________8. Revenue is recognized when (or as) the entity satisfies a

performance obligation. According to PFRS 15 Revenue from Contracts with
Customers, revenue is measured at
a. the fair value of the consideration received or receivable
b. the transaction price
c. the stand-alone selling price of the good or services transferred
d. the amount of the transaction price allocated to the performance
obligation satisfied.

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ACC 109: INTERDMEDIATE ACCOUNTING, PART 4 2ND GRADING PERIOD
REVENUE RECOGNITION AND NCA HELD FOR SALE QUIZ

________9. During the period ABC Co. transfers goods to XYZ, Inc. Which of the
following does not indicate that the transaction is a consignment
arrangement?
a. ABC Co. retains legal title over the goods until XYZ, Inc. sells them to
third parties.
b. ABC Co. can require the return of any unsold goods within 60 days.
c. If XYZ, Inc. is not satisfied with the goods, XYZ, Inc. has the right to
return them to ABC Co.
d. ABC Co. can require XYZ, Inc. to transfer the goods to 123 Corporation.
e. XYZ, Inc. is not obligated to remit any payment to ABC Co. unless XYZ,
Inc. sells the goods

________10. A non-refundable upfront fee that relates to administrative tasks

to set up a contract is most likely accounted for as
a. a prepayment and recognized as revenue only when the related goods or
services are transferred to the customer.
b. a contract asset that is presented separately from contract liability in
the statement of financial position
c. as an outright expense
d. all of these

________11. Non-current assets are presented as current items in the statement

of financial position
a. only when they are expected to be sold within 12 months from the end of
reporting period.
b. only if they are actually sold after the reporting period but before the
date of authorization of the financial statements for issue.
c. only when they qualify as held for sale assets under PFRS 5.
d. never presented as current items.

________12. A noncurrent asset classified as held for sale in accordance with

PFRS 5 has not been sold after a year. The asset shall continue to be
presented as held for sale under PFRS 5 if
a. the delay is due to events beyond the entity’s control
b. the entity remains committed to its plan to sell the asset
c. the noncurrent asset is actually sold after the reporting period but
before the financial statements were authorized for issue.
d. a and b

________13. Which of the following statements is true regarding the accounting

treatment of costs to sell under PFRS 5?
a. Costs to sell are added to the fair value when determining the measurement
basis for an asset held for sale
b. Costs to sell are never discounted because held for sale assets should be
sold within one year
c. Costs to sell are discounted if it is expected that the sale will be made
beyond one year.
d. a and c

________14. According to PFRS 5, gains and losses on remeasurement of assets

held for sale are
a. recognized in profit or loss
b. recognized in other comprehensive income
c. recognized only for impairment losses
d. not recognized

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ACC 109: INTERDMEDIATE ACCOUNTING, PART 4 2ND GRADING PERIOD
REVENUE RECOGNITION AND NCA HELD FOR SALE QUIZ

________15. Which of the following is included in profit from continuing

operations?
a. extraordinary items c. other comprehensive income
b. discontinued operations d. income tax expense

PART II: PROBLEM SOLVING

________1. On 1 July 20X7, The Pyretus Company, a manufacturer of office

furniture, supplied goods to The Natiso Company for ₱120,000 on condition
that this amount was paid in full on 1 July 20X8. Natiso had earlier rejected
an alternative offer from Pyretus whereby they could have bought the same
goods by paying cash of ₱108,000 on 1 July 20X7. Under PFRS 15, how much
relating to this transaction should Pyretus recognize in profit or loss in
respect of revenue and interest income for the year ended 30 June 20X8?
Revenue Interest income
a. 108,000 12,000
b. 120,000 Nil
c. 108,000 Nil
d. 120,000 12,000
(Adapted)

________2. On 1 July 20X7 The Otakamiro Company handed over to a client a new
computer system. The contract price for the supply of the system and after
sales support for 12 months was ₱800,000. Otakamiro estimates the cost of
the after-sales support at ₱120,000 and it normally marks up such costs by
50% when tendering for support contracts. Under PFRS 15, the revenue
Otakamiro should recognize in its financial year ended 31 December 20X7 is
a. 620,000 b. 800,000 c. 710,000 d. Nil
(Adapted)

________3. On October 1, 20x3, Acme Fuel Co. sold 100,000 gallons of heating
oil to Karn Co. at ₱3 per gallon. Fifty thousand gallons were delivered on
December 15, 20x3, and the remaining 50,000 gallons were delivered on January
15, 20x4. Payment terms were: 50% due on October 1, 20x3, 25% due on first
delivery, and the remaining 25% due on second delivery. What amount of
revenue should Acme recognize from this sale during 20x3?
a. 75,000 b. 150,000 c. 225,000 d. 300,000
(AICPA)

________4. In 20x2, Super Comics Corp. sold a comic strip to Fantasy, Inc. and
will receive royalties of 20% of future revenues associated with the comic
strip. At December 31, 20x3, Super reported royalties receivable of ₱75,000
from Fantasy. During 20x4, Super received royalty payments of ₱200,000.
Fantasy reported revenues of ₱1,500,000 in 20x4 from the comic strip. In its
20x4 income statement, what amount should Super report as royalty revenue?
a. 125,000 b. 175,000 c. 200,000 d. 300,000
(AICPA)

________5. Lin Co., a distributor of machinery, bought a machine from the

manufacturer in November 20x3 for ₱10,000. On December 30, 20x3, Lin sold
this machine to Zee Hardware for ₱15,000, under the following terms: 2%
discount if paid within thirty days, 1% discount if paid after thirty days
but within sixty days, or payable in full within ninety days if not paid
within the discount periods. However, Zee had the right to return this
machine to Lin if Zee was unable to resell the machine before expiration of
the ninety-day payment period, in which case Zee’s obligation to Lin would

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ACC 109: INTERDMEDIATE ACCOUNTING, PART 4 2ND GRADING PERIOD
REVENUE RECOGNITION AND NCA HELD FOR SALE QUIZ

be canceled. In Lin’s net sales for the year ended December 31, 20x3, how
much should be included for the sale of this machine to Zee?
a. 0 b. 14,700 c. 14,850 d. 15,000
(AICPA)

Use the following information for the next two questions:

DISCALCED BAREFOOTED NAKASAKASAKA Supermarket, Inc. awards customers loyalty
points for their purchases. A customer is entitled to one point for every ₱400
purchase. The points accumulated may be redeemed for awards in the form of
appliances, electronics, groceries and other household items. DISCALCED
estimates the stand-alone selling price of each point at ₱4.00. During the
period, DISCALCED made total sales of ₱40M to cardholders.

________6. How much sales revenue is recognized?

a. 400,000 b. 40,000,000 c. 39,600,000 d. 0

________7. How much is the deferred revenue from loyalty points?

a. 400,000 b. 40,000,000 c. 39,600,000 d. 0

________8. Wren Corp.’s trademark was licensed to Mont Co. for royalties of
15% of sales of the trademarked items. Royalties are payable semiannually on
March 15 for sales in July through December of the prior year, and on
September 15 for sales in January through June of the same year. Wren received
the following royalties from Mont:
March 15 September 15
20x2 10,000 15,000
20x3 12,000 17,000

Mont estimated that sales of the trademarked items would total ₱60,000 for July
through December 20x3. In Wren’s 20x3 income statement, the royalty revenue
should be
a. 26,000 b. 29,000 c. 38,000 d. 41,000
(AICPA)

________9. Rill Co. owns a 20% royalty interest in an oil well. Rill receives
royalty payments on January 31 for the oil sold between the previous June 1
and November 30, and on July 31 for oil sold between December 1 and May 31.
Production reports show the following oil sales:

June 1, 20x2 - November 30, 20x2 300,000

December 1, 20x2 - December 31, 20x2 50,000
December 1, 20x2 - May 31, 20x3 400,000
June 1, 20x3 - November 30, 20x3 325,000
December 1, 20x3 - December 31, 20x3 70,000

What amount should Rill report as royalty revenue for 20x3?

a. 140,000 b. 144,000 c. 149,000 d. 159,000

Use the following information for the next two questions:

VISAGE APPEARANCE Co. is committed to a plan to sell its headquarters building
and has initiated actions to locate a buyer. As of this date, the building has
a carrying amount of ₱5,000,000, a fair value of ₱6,000,000 and estimated costs
to sell of ₱200,000.

________10. VISAGE Co. has an intention to transfer ownership of a building to

a buyer after it vacates the building. How should VISAGE Co. classify the
headquarters building?

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ACC 109: INTERDMEDIATE ACCOUNTING, PART 4 2ND GRADING PERIOD
REVENUE RECOGNITION AND NCA HELD FOR SALE QUIZ

a. Included under property, plant and equipment at ₱5,000,000.

b. Included under property, plant and equipment at ₱5,800,000.
c. Classified as held for sale at ₱5,000,000
d. Classified as held for sale at ₱5,800,000

________11. VISAGE Co. will continue to use the building until the construction
of a new headquarters is completed. How should VISAGE Co. classify the
headquarters building?
a. Included under property, plant and equipment at ₱5,000,000.
b. Included under property, plant and equipment at ₱5,800,000.
c. Classified as held for sale at ₱5,000,000
d. Classified as held for sale at ₱5,800,000

________12. PERAMBULATE STROLL Co. is a commercial leasing and finance company.

As of year-end, PERAMBULATE holds equipment that is available either for
sale or lease. PERAMBULATE is not yet decided whether to sell or to lease
the equipment. The equipment has a carrying amount of ₱1,000,000, fair value
of ₱1,200,000 and costs to sell of ₱50,000. How should PERAMBULATE Co.
classify the equipment?
a. Inventory, ₱1,000,000 c. Held for sale, ₱1,150,000
b. Investment property, ₱1,250,000 d. Held for sale, ₱1,000,000

________13. In Baer Food Co.’s 20x3 single-step income statement, the section
titled “Revenues” consisted of the following:

Net sales revenue 187,000

Results from discontinued operations:
Loss from discontinued component Z including loss
on disposal of ₱1,200 16,400
Less: Tax benefit 4,000 (12,400)
Interest revenue 10,200
Gain on sale of equipment 4,700
Cumulative change in 20x1 and 20x2 income due to
change in depreciation method (net of ₱750 tax
1,500
effect)
Total revenues 191,000

In the revenues section of the 20x3 income statement, Baer Food should have
reported total revenues of
a. 197,200 b. 215,400 c. 203,700 d. 201,900

________14. During 20x4, Lopez Corporation disposed of Pine Division, a major

component of its business. Lopez realized a gain of ₱500,000, net of taxes,
on the sale of Pine's assets. Pine's operating losses, net of taxes, were
₱600,000 in 2004. How should these facts be reported in Lopez's income
statement for 2004?
Total Amount to be Included in
Income from Results of
Continuing Operations Discontinued Operations
a. 600,000 loss 500,000 gain
b. 100,000 loss 0
c. 0 100,000 loss
d. 500,000 gain 600,000 loss
-NOTHING FOLLOWS-

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ACC 109: INTERDMEDIATE ACCOUNTING, PART 4 2ND GRADING PERIOD
REVENUE RECOGNITION AND NCA HELD FOR SALE QUIZ

1. A Revenue = 108,000 cash selling price; Interest income = (120,000 – 108,000) = 12,000

2. C
Satisfac-tion
of perfor-
Performance Allocation of transaction mance
obligations Allocation method price obligation Revenue
Expected cost plus a
After-sales support margin (120,000 x 150%) = 180,000 50%a 90,000

Computer system Residual (800,000 - 180,000) = 620,000 100% 620,000

710,000
a (6 mos. over 12 mos.)

3. B (50,000 gallons delivered in 20x3 x ₱3 per gallon) = 150,000

4. D (1,500,000 x 20%) = 300,000

5. A No revenue is recognized because the control over the machine is not transferred.

6. C ₱40M – [(₱40M ÷ 400) x ₱4)] = 39,600,000

7. A [(₱40M ÷ ₱400) x ₱4] = 400,000

8. A
Royalty revenue for Jan. to June, 20x3
17,000
(received on Sept. 20x3)
Royalty revenue for July to Dec., 20x3 (60,000 x 15%) 9,000
Total royalty revenue 26,000

9. C
Solution:
December 1, 20x2 - May 31, 20x3 400,000
December 1, 20x2 - December 31, 20x2 (50,000)
June 1, 20x3 - November 30, 20x3 325,000
December 1, 20x3 - December 31, 20x3 70,000
Oil sales in 20x3 745,000
Multiply by: 20%
Royalty revenue in 20x3 149,000

10. C 5,000,000 lower of carrying amount and fair value less costs sell
11. A – not available for immediate sale in its present condition
12. A – Sale is not highly probable

13. A
Solution:
Net sales revenue 187,000
Interest revenue 10,200
Adjusted total revenues 197,200

14. C (600,000 loss – 500,000 gain) = 100,000 loss

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