No.1 In 20x1. ABC Co. was contracted to build a railroad.

The contract price is equal to the construction

costs incurred plus 20% thereof. However, if the Project is completed within 4 years, ABC will receive an
additional payment of P200.000. Information on the project is shown below:

20x1 20x2 20x3

Costs incurred to date 2.400.000 4.575.000 6.125.000

Estimated costs to complete 3.600.000 1.525.000 125.000

In 20x1 and 20x2. it was not highly probable that the project will be completed on time. However. in 20x3,
ABC assessed that project will be completed earlier than originally expected and thus it is now highly
probable that the incentive payment will be received.

How much profit is recognized on the contract in 20x3?

o 595,000
o 634,000
o 506,000
o 603,000

No.2 In 20x1, Gorgeous Too Co. enters into a fixed-price construction contract with a customer. At
contract inception, Gorgeous Too Co. assesses its performance obligations in the contract and concludes
that it has a single performance obligation that is satisfied over Ave. Gorgeous Too Co. determines that
the measure of progress that best depicts its performance on the contract is input method based on costs
incurred.

Information on the contract follows:

20x1 20x2

Cumulative contract costs incurred 2.250.000 4,800,000

Cumulative profits recognized 750.000 1,200.000

Progress billings 2,400.000 3,600,000

Collections on progress billings 2,000,000 4.000,000

The contract is completed in 20x2.

How much is the transaction price in the contract?

o 9.000,000
o 5,00,000
o 7.000.000
o 6.000.000

No.3 In 20x1. Salamagi Co. entered into a contract with a customer. The contract stipulates the following:

• Contract price of P20,000.000

• 5% mobilization fee due upon signing of the contract, to be deducted from the final billing
• 10% customer retention on all subsequent progress billings, to be paid to Salamagi on completion of the
project

Salamagi Co. estimated a P5,000,000 gross profit from the project. The percentage of completion method
will be used. In 20x1, Salamagi billed the customer for 50% completion of the project. The customer
accepted all the billings, except one for 10% which was accepted on January of the following year. All the
accepted billings were collected during the year except an 8% billing which was due January of the
following year.

What is the amount of profit recognized from the contract in 20x1?

o 2,500.000
o 2.720.000
o 2.650.000
o 2,900.000

No.4 Which of the following does not indicate that a promise to transfer a good or service is separately
identifiable?

o The good or service is not highly interrelated with other goods or services promised in the
contract.
o The good or service is not an input to a combined output specified by the customer.
o The good or service does not significantly modify another good or service promised in the
contract.
o The customer's decision of not purchasing a good or service affects the other promised goods or
services in the contract.

No.5 In 20x1. ABC Co. was contracted to build a railroad. The contract price is equal to the construction
costs incurred plus 20% thereof. However, if the project is completed within 4 years, ABC will receive an
additional payment of P200,000. Information on the project is shown below:

20x1 20x2 20x3

Costs incurred to date 2,400,000 4,575.000 6,125,000

Estimated costs to complete 3.600.000 1.525.000 125.000

In 20x1 and 20x2. it was not highly probable that the project will be completed on time. However, in 20x3.
ABC assessed that project will be completed earlier than originally expected and thus it is now highly
probable that the incentive payment will be received.

How much revenue is recognized on the contract in 20x3?

o 2,610.000
o 2.022.000
o 2,595.000
o 2,056.000
No.6 ABC Co. started work on a construction contract in 20x1. The contract price is P However, the
contractual agreement stipulates that if the cumulative inflation reaches or exceeds 26%. the contact
price shall be adjusted upwards by 10%. Additional information on the contract is shown below:

20x1 20x2

Costs incurred to date 2.400.000 4.500.000

Estimated costs to complete 3.600.000 1.500.000

Cumulative inflation rate 18% 27%

How much is the profit recognized in 20x2?

o 2,150.000
o 1.890.000
o 2,060,000
o 1,980.000

No.7 VALEDICTION Construction Co. entered into an 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 P VALEDICTION incurred the following costs in the first
year of the construction:

Costs of negotiating the contract (charged immediately as expense) 400,000

Costs of materials used in construction 12,000,000

Costs of materials purchased but not yet used in construction 2.000.000

Site labor costs 4,000.000

Site supervision costs 800.000

Depreciation of equipment used in construction 480,000

Depreciation of idle equipment not used in the contract 240,000

Costs of moving equipment and materials to and from the construction site 160.000

Costs of hiring equipment 560.000

Advance payment to subcontractor (the subcontracted work is not yet started) 80.000

How much revenue is recognized in the first year of the contract?

o 25M
o 46M
o 36M
o 45M

No.8 In 20x1, Salamagi Co. entered into a contract with a customer. The contract stipulates the following:
• Contract price of P20,000.000

• 5% mobilization fee due upon signing of the contract, to be deducted from the final billing

• 10% customer retention on all subsequent progress billings, to be paid to Salamagi on completion of the
project

Salamagi Co. estimated a P5,000,000 gross profit from the project. The percentage of completion method
will be used. In 20x1. Salamagi billed the customer for 50% completion of the project. The customer
accepted all the billings. except one for 10% which was accepted on January of the following year. All the
accepted billings were collected during the year except an 8% billing which was due January of the
following year.

What is the total amount of collections from the billings in 20x1?

o 5.760.000
o 6.760.000
o 6.400.000
o 7.400.000

NO.9 Information on Red Hot Co.'s construction contracts with customers which commenced during 20x1
is shown below:

Contract 1 Contract 2
Contract price 420,000 300,000
Costs incurred during the year 240,000 280,000
Estimated costs to complete 120,000 40,000
Progress billing 150,000 270,000
Collections 90,000 250,000

At contract inception. Red Hot Co. assessed that its performance obligation in each of Contract 1 and
Contract 2 is satisfied at a point in time, that is, when the construction is completed. How much total
profit (loss) is recognized from the two contracts in 20x1?

o 0
o 20,000
o (20,000)
o 40,000

No.10 Information on Red Hot Co.'s construction contracts with customers which commenced during 20x1
is shown below:

Contract 1 Contract 2
Contract price 420,000 300,000
Costs incurred during the year 240,000 280,000
Estimated costs to complete 120,000 40,000
Progress billing 150,000 270,000
Collections 90,000 250,000
At contract inception. Red Hot Co. assessed that its performance obligation in each of Contract 1 and
Contract 2 is satisfied over time. However, Red Hot Co. determined that the outcome of the performance
obligation in each of the contracts cannot be reasonably measured but contract costs incurred are
recoverable. How much total profit (loss) is recognized from the two contracts in 20x1?

o 0
o 20,000
o (20,000)
o 40,000

No.11 In 20x1. Gorgeous Too Co. enters into a fixed-price construction contract with a customer. At
contract inception, Gorgeous Too Co. assesses its performance obligations in the contract and concludes
that it has a single performance obligation that is satisfied over time. Gorgeous Too Co. determines that
the measure of progress that best depicts its performance on the contract is input method based on costs
incurred.

Information on the contract follows:

20x1 20x2

Cumulative contract costs incurred 2.250.000 4.800.000

Cumulative profits recognized 750.000 1.200.000

Progress billings 2,400.000 3.600.000

Collections on progress billings 2,000.000 4.000.000

The contract is completed in 20x2.

What amount of revenue is recognized in 20x2?

o 3,000,000
o 4,800,000
o 2,800,000
o 6,000,000

No.12 On July 1. 20x1, Contractor Co. enters into a contract with a customer for the construction of a
building. At contract inception. Contractor Co. assesses the contract in accordance with the principles of
PFRS 15 and concludes that it has a single performance obligation that is satisfied over time. Contractor
Co. then determines that the appropriate measure of its progress on the contract is input method based
on costs incurred. Information on the contract is shown below:

Contract price 600.000

Contract costs incurred during 20x1 120,000

Estimated remaining costs as of Dec. 31. 20x1 240.000

Billings to the customer during 20x1 180,000

Collections on billings during 20x1 60.000

What amount of revenue is recognized on the contract in 20x1?

o 200.000
o 180.000
o 240.000
o 220,000

No.13 The primary issue in the accounting for construction contracts is

o the determination of the percentage of completion and revenue to be recognized during the
period.
o the allocation of costs of a long-lived asset to permit the proper matching of costs with revenues.
o the allocation of contract revenue and contract costs to the accounting periods in which
construction work is performed.
o 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.

No.14 In 20x1, Silverchair Co. a construction company, enters into a contract with a customer for the
construction of a building. The contract states a fixed fee of P8,700.000. Silverchair's performance
obligation in the contract is satisfied over time. Silverchair uses the 'cost-to-cost' method in measuring its
progress in the contract. Information on the contract follows:

20x1 20x2

Estimated total costs at completion 6.525,000 6,960,000

Percentage of completion 15% 65%

How much is the profit recognized in 20x2?

o 840,750
o 1,131,000
o 804,750
o 978,750

No.15 According to PFRS 15, each contract is accounted for separately. However. two or more contracts
entered into at or near the same time with the same customer are combined and accounted for as a single
contract if any of the following conditions are met, except

o At contract inception, the collectability of the consideration is probable of collection.

o The contracts are negotiated as a package with a single commercial objective.
o The amount of consideration to be paid in one contract depends on the price or performance of
the other contract.
o Some or all of the goods or services promised in the contracts are a single performance obligation.

No.16 On July 1. 20x1, Wash Co. grants a franchisee the right to sell Wash Co.'s products in a specific
market over a period of 10 years. The franchise contract requires an upfront fee of P800.000, which
includes P100.000 for equipment that Wash Co. will provide to the franchisee. The amount reflects the
stand-alone selling price of the equipment. In addition. the franchisee will pay a 10% sales-based royalty.
Wash Co. has granted similar rights to other franchisees in other locations. Wash Co. regularly undertakes
activities that promote the bran name nationally Wash delivers the equipment to the franchisee on July
15, 20x1. The franchisee reports total sales of P600.000 for the year. How much total revenue is
recognized from the contract in 20x1?

o 860.000
o 760.000
o 189.167
o 213,259

No.17 On January 1, 20x1. Baguio Beans, a well-known basketball team. licenses the use of its name and
logo to a customer. The customer. an apparel designer, has the right to use Baguio Beans' name and logo
on items including t-shirts. caps, mugs and towels for two years. In exchange for providing the license.
Baguio Beans will receive a fixed consideration of P200.0000 and a royalty of 20% of the sales price of any
items using the team name or logo. The customer expects that Baguio Beans will continue to play games
and provide a competitive team. The license is transferred to the customer at contract inception. The
customer reports sales of P1.000.000 for the year. How much revenue will Baguio Beans recognize from
the contract in 20x1?

o 400,000
o 200.000
o 100.000
o 300.000

No.18 An entity, a movie distribution company, licenses Movie XYZ to a customer. The customer, an
operator of cinemas, has the right to show the movie in its cinemas for six weeks. In exchange for providing
the license, the entity will receive a portion of the operator's ticket sales for Movie XYZ. Which of the
following statements is incorrect?

o The entity shall estimate the variable consideration. subject the estimate to the "constraining'
principle of PFRS 15. and recognize the resulting amount at the point in time when the license is
transferred to the customer.
o The only performance obligation in the contract is the promise to grant the license.
o The fact that the performance obligation in the contract is satisfied over time or at a point in time
is irrelevant when determining how revenue is recognized on the contract.
o The transaction price is a variable consideration.

No.19 On January 1, 20x1, Feedback, a music record label, licenses to a customer a 1975 recording of a
classical symphony by a noted orchestra. The customer, a consumer products company. has the right to
use the record symphony in all commercial, including television, radio and online advertisements for 2
years in the Philippines. In exchange for providing the license. Feedback receives a fixed consideration of
P10.000 per month. The contract does not include any other goods or services of be provided by Feedback.
The contract is non-cancellable. The license is transferred to the customer on January 1, 20x1. The
appropriate discount rate is 12%. How much contract revenue (excluding interest revenue) will Feedback
recognize in 20x1.
 o 240.000
o 120.000
o 202.806
o 212,434

No.20 The license grants Plankton rights over Mr. Krabs' trademark (Krusty Krab) and related proprietary
processes for a period of ten years. The franchise agreement requires Mr. Krabs' to perform initial services
to assist Plankton in opening the new restaurant. These include provision of written guidelines on the
standard layout, design, decoration and color scheme of the restaurant and provision of training. No
separate fees are charged for these services. Moreover, the franchise agreement requires Mr. Krabs to
continually undertake activities. such as research and development and marketing campaigns, to support
the franchise name. Mr. Krabs substantially performs all the initial services on December 31, 20x1.
Plankton commences business operations on January 3. 20x2. How much total revenue will KRabs
recognize in 20x2?

• 0
• 27,477
• 15,365
• 60.747

No.21 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
o V,I,IV,III,II
o V,IV,II,I,III
o V,III,I,IV,II
o V,I,III,IV,II

No.22 On Nov. 1, 20x1, DRINK Co. entered into a franchise contract with TIPPLE Co. The franchise
agreement requires an initial franchise fee that is payable as follows: 20% down payment at the signing
of the contract, and the balance due in four equal annual payments starting November 1. 20x2. The license
period is 4 years. The franchise contract requires DRINK Co. to undertake pre-opening activities necessary
to setup the contract and post-opening activities that would further improve the intellectual property to
which the franchisee has All the preopening activities are completed, and TIPPLE Co. started operations.
on January 31, 20x2. How should DRINK Co. recognize revenue from the initial franchise fee?

o The sum of the cash down payment and the present value of the deferred balance are recognized
as revenue in full on January 31. 20x1.
o The cash down payment is recognized in full on January 1. 20x2 but the balance is amortized over
the license period.
 o The sum of the cash down payment and the present value of the deferred balance are recognized
as revenue over the license period.
o The cash down payment is recognized in full on January 31. 20x2 but the balance is amortized
over the license period.

No.23 If an entity's promise to grant a license is not distinct,

o US GAAP (FAS No. 45) is applied to determine whether there is substantial performance of the
initial services required in the contract.
o the specific principles of PFRS 15 are applied to determine whether the performance obligation is
satisfied over time or at a point in time.
o the general principles of PFRS 15 are applied to determine whether the performance obligation is
satisfied over time or at a point in time.
o both the general and specific principles are used to determine whether the performance
obligation is satisfied over time or at a point in time and whether the nature of the promise to
grant the license is a 'right to access' or a 'right to use.’

No.24 Which of the following correctly relates to 'Step 2' in the recognition of revenue under PFRS 15?

o The entity shall treat each promise to transfer a distinct good or service as a performance
obligation.
o The entity shall determine the transaction price and shall consider whether the transaction price
includes. among other things, a variable consideration or significant financing.
o The entity shall recognize revenue when (or as) a performance obligation is satisfied.
o The entity shall assess the customers ability and intention to pay the consideration in the contract
when they become due.

No.25 On December 1, 20x1, CANOROUS Co. granted a 5-year franchise right to MELODIOUS, Inc. for an
initial franchise fee of P400,000 and a 10% sales-based royalty. The initial franchise fee is non-refundable
and due upon signing of the contract. At contract inception, CANOROUS determines that the nature of its
promise to grant the license is to provide the customer with the right to access CANOROUS's intellectual
property as it exist throughout the license period. As of December 31, 20x1. CANOROUS has no remaining
obligation or intent to refund any of the cash received, all the initial services necessary to setup the
contract have been performed, and MELODIOUS started operating the franchised business. MELODIOUS
reported sales of P800,000 for 20x1. How much revenue shall CANOROUS recognize in 20x1?

o 80.000
o 0
o 86,667
o 480.000