Chapter 12 Assignment with explanation 112 PDF

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Summary

Application of 5-Step Process and Timing on Recognition of Revenue (Point-in-Time or Over Time) Items 1 to 10 are based on the following information: SmaGlo, Inc., a telecommunications operator, entered into a contract with Kim Dorothy on March 1, 20x7. In line with the contract, Kim Dorothy subscri...

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Application of 5-Step Process and Timing on Recognition of Revenue (Point-in-Time or Over Time) Items 1 to 10 are based on the following information: SmaGlo, Inc., a telecommunications operator, entered into a contract with Kim Dorothy on March 1, 20x7. In line with the contract, Kim Dorothy subscribes for SmaGlo’s monthly plan for 12 months and in return Kim Dorothy received a free Apple I-Phone handset from SmaGlo. Kim Dorothy will pay a monthly fee of P1,200. Kim Dorothy gets the handset immediately after contract signature. SmaGlo sells the same handsets for P2,400 and the same monthly plans for P800 per month without handset. Identify the contract with a customer – what kind of contract between SmaGlo, Inc. and Kim Dorothy? Oral contract Written contract Customary business practice No contract Identify the performance obligations (PO) – how many performance obligations? 1-Performance Obligation: Network services (monthly/installment plan) 1-Performance Obligation: Apple I-Phone Handset 2-Performance Obligations: Network services (monthly/installment plan) and Apple I-Phone Handset No performance obligation since there is no existing contract Determine the transaction price – the total transaction price? P2,400 P9,600 P12,000 P14,400 Allocate the transaction price to the performance obligations: the allocated transaction price to each performance obligations? None, since there is no contract. P9,600 for network service and P2,400 for Apple I-Phone Handset P0 for network service and P12,000 for Apple I-Phone Handset P11,520 network service and P2,880 for Apple I-Phone Handset Recognize revenue when (or as) an entity satisfies a performance obligation: timing of revenue recognition?

None, since there is no contract Network service and for Apple I-Phone Handset – both overtime Network service – over time and for Apple I-Phone Handset – point in time Network service – point in time and for Apple I-Phone Handset – over time On March 1, 20x7, the amount of accounts receivable to be recorded: None P2,800 P9,600 P12,400 On March 1, 20x7, the revenue from sales of goods amounted to: None P2,800 P9,600 P12,400 On March 31, 20x7, the amount of accounts receivable to be recorded None P960 P1,200 P9,600 On March 31, 20x7, the revenue from network services amounted to: None P960 P1,200 P12,400 On December 31, 20x7, the total revenue amounted to: None P960 P1,200 P12,400

Revenue Recognition On 25 June 20x9 Cambridge Co. received an order from a new customer, Circus Co. for products with a sales value of P900,000. Circus Co. enclosed a deposit with the order of P90,000. On 30 June Cambridge Co. had not completed credit checks on Circus Co and had not dispatched any goods. Cambridge Co is considering the following possible entries for this transaction in its financial statements for the year ended 30 June 20x9. (i) Create a trade receivable for P810,000. (ii) Include P90,000 in revenue for the year. (iii) Recognize P90,000 as a contract liability. (iv) Include P900,000 in revenue for the year. (v) Do not include anything in revenue for the year. According to PFRS 15 Revenue from Contracts with Customers, how should Cambridge Co. record this transaction in its financial statements for the year ended 30 June 20x9? (i) and (iv) only (ii) and (iv) only (ii) and (v) only (iii) and (iv) only On June 1, 20x5, Johnson & Sons sold equipment to James Landscaping Services. In exchange for a zerointerest bearing note with a face value of P55,000, with payment due in 12 months. The fair value of the equipment on the date of sale was P50,000. The amount of revenue to be recognized on this transaction in 20x5 is: P5,000 P55,000 P50,000 P50,000 sales and P2,917 interest revenue On 31 March 20x9 Dune entered into a contract to sell some machinery for P700,000. The contract required Dune to buy back the goods in two-year’s time for P500,000. How should the contract be accounted for in Dune’s financial statements? Recognize P700,000 revenue and account for costs of repurchase in two years’ time Account for the financial transaction as a lease in accordance with PFRS 15 Leases Recognize a financial liability for a purchase price and recognize P700,000 revenue Recognize a financial liability for P500,000 and recognize revenue for P200,000 for the difference between the selling price and the repurchase price

OC signed a contract to provide office services to PQ for one year from 1 October 20x6 for P500 per month. The contract required PQ to make a single payment to OC for all 12 months at the beginning of the contract. OC received P6,000 on October 1, 20x6. What mount of revenue should OC recognize in its statement of profit or loss for the year ended March 31, 20x7? Nil P300 P3,000 profit P6,000 profit LP received an order to supplier a customer with 10,000 units of product A every month for two years. The customer had negotiated a low price of P200 per 1,000 units and agreed to pay P12,000 in advance every six months. The customer made the first payment on July 1, 20x6 and LP supplied the goods each month from that date. LP’s year end is September 30. In addition to the effect of cash received, what is the effect of this order on LP’s financial statement for the year ended September 30, 20x6, in accordance with PFRS 15 Revenue from Contracts with Customers? (1) Revenue; (2) Statement of financial position (1) P6,000; (2) P36,000 trade receivable (1) P6,000; (2) P6,000 current liability (1) P12,000; (2) P36,000 trade receivable (1) P12,000; (2) No effect OC signed a contract to provide office cleaning supplied for a period of one year from October 1, 20x8 for a fee of P500 per month. The contract required the client to make one payment to OC covering all 12 months’ service in advance. The contract cost was estimated at P300 per month for wages, materials and administration costs. OC received P6,000 on October 1, 20x8. What profit or loss should OC recognize in its statement of profit or loss for the year ended March 31, 20x9? P600 loss P1,200 profit P2,400 profit P4,200 profit LP received an order to supply 10,000 units of product A every month for two years. The customer had negotiated a low price of P200 per 1,000 units and agreed to pay P12,000 in advance every 6 months. The customer made the first payment on July 1, 20x2 and LP supplied the goods each month from July 1, 20x2. LP’s year end is September 30. In addition to recording the cash received, what entries should LP record, in its financial statements for the year ended September 30, 20x2, in with PFRS 15 Revenue from Contract with Customers? Include P6,000 in revenue for the year and create a trade receivable for P36,000 Include P6,000 in revenue for the year and create a current liability for P6,000

Include P12,000 in revenue for the year and create a trade receivable for P36,000 Include P12,000 in revenue for the year but do not create a trade receivable or current liability On 31 March DT received an order from a customer, XX, for products with a sales value of P900,000. XX enclosed a deposit with the order of P90,000. On March 31, DT had not obtained credit references of XX and has not determined if it will meet this order. According to PFRS 15 Revenue from Contract with Customers, how should DT record this transaction in its financial statements for the year ended March 31? (1) Include P90,000 as revenue for the year (2) Include P90,000 as revenue for the year (3) Do not include anything as revenue for the year (4) Create a trade receivable for P810,000 (5) Create a trade payable for P90,000 1 and 4 2 and 5 3 and 4 3 and 5 Coldwear Co entered into a 12-month contract to sell coats to a fashion retailer on October 1, 20x5. The contract specified a price of P200 per coat, which would be reduced to P175 per coat if a minimum of 400 were purchased in the year. During first six months of the contract, the retailer purchased 150 coats and Coldwear Co determined that this level of demand would continue into the second half of the year. In March 31, 20x6, due to a famous singer wearing one of the coats, demand increased considerably, and the retailer purchased a further 500 coats in total between April 1, 20x6 and September 3, 20x6. What revenue from the contract should Coldwear recognize in its financial statements for the years ended March 31, 20x6 and 20x7? (1) Y/e March 31, 20x6; (2) Y/e March 31, 20x7 (1) P26,250; (2) P87,500 (1) P30,000; (2) P83,750 (1) P30,000; (2) P87,500 (1) P30,000; (2) P100,000 On March 20x7, DT received an order from a new customer, XX, for goods with sales value of P900,000. XX enclosed a deposit with the order of P90,000. On March 31, 20x7, DT had dispatched any goods. DT is considering the following possible entries for the transaction in its financial statements for the year ended 31 March 20x7: (1) Include P900,000 in revenue (2) Include P90,000 in revenue

(3) Do not include any amount in revenue (4) Recognize a trade receivable for P810,000 (5) Recognize a trade payable for P90,000 How should DT account for this transaction in its financial statements for the year ended March 31, 20x7 in accordance with PFRS? 1 and 4 2 and 5 3 and 4 3 and 5 Transaction Price – Noncash consideration Build Company contracts with Palijo Inc. to build 100,000 mobile phones. Palijo agrees to pay Build Company for P5,000,000 and contributed several parts with a fair value of P1,000,000 to assist in the manufacture of the phones to Palijo’s specifications. If Build concludes that it has control over the contributed parts, the transaction price would be: Nil P1,000,000 P5,000,000 P6,000,000 Contract Assets and Receivable Items 22 to 26 are based on the following information: On January 1, 20x9, Blesilda Prudencio Company enters into a contract to transfer Product X and Product Y to Virginia and Nanette Co. for P200,000. The contract specifies that payment of Product X will not occur until Product Y is also delivered. In other words, payment will not occur until both Product X and Product Y are transferred to Virginia and Nanette. Blesilda Prudencio determines that standalone prices are P60,000 for Product X and P140,000 for Product Y. Blesilda Prudencio delivers Product X to Virginia and Nanette on February 1, 20x8. On March 1, 20x9, Blesilda Prudencio delivers Product Y to Virginia and Nanette. On January 1, 20x9, the amount of accounts receivable to be recorded: None P60,000 P140,000 P200,000

On February 1, 20x9, the amount of accounts receivable to be recorded: None P60,000 P140,000 P200,000 On February 1, 20x9, the amount of revenue to be recorded: None P60,000 P140,000 P200,000 On March 1, 20x9, the amount of accounts receivable to be recorded: None P60,000 P140,000 P200,000 On March 1, 20x9, the amount of revenue to be recorded: None P60,000 P140,000 P200,000 Contract Liabilities Items 27 and 31 are based on the following information: On March 1, 20x9, Marissa Molina Company enters into a contract to transfer a product to Lilibeth Hosena Inc. on July 31, 20x9. It is agreed that Lilibeth Hosena will pay the full price of P20,000 in advance on April 1, 20x9. The contract is non-cancellable. Lilibeth Hosena, however, does not pay until April 15, 20x9, and Marissa Molino delivers the product on July 1, 20x9. The cost of the product is P15,000. On March 1, 20x9, the amount of accounts receivable to be recorded: None P1,000 P15,000

P20,000 On March 1, 20x9, the amount of revenue to be recorded: None P1,000 P15,000 P20,000 On April 1, 20x9, the amount of revenue to be recorded: None P1,000 P15,000 P20,000 On April 15, 20x9, the amount of revenue to be recorded: None P1,000 P15,000 P20,000 On July 31, 20x9, the amount of sales revenue to be recorded: None P1,000 P15,000 P20,000 Wood Designs Co enters into a contract on July 1, 20x5 to make and deliver furniture to a hotel chain in two years’ time, when a new hotel is due for completion. Wood Designs Co offers its customer the opportunity to pay P6,000,000 on delivery or P5,144,000 at the inception of the contract on July 1, 20x5. The customer pays the lower amount immediately. The interest rate implicit in the contract is 8 per cent and Wood Design Co’s incremental borrowing rateis 7 per cent. What contract liability is recognized in Wood Design Co’s financial statements in the year ended June 30, 20x6? P5,144,000 P5,504,000 P5,555,520

P6,000,000 Fonesell Co enters into a contract on September 1, 20x5 to conduct telephone marketing activities on behalf of a customer. The contract has a price of P8,000 and required Fonesell Co to contact 10,000 households over a period of six months in order to enquire about buying habits and promote its customer. The customer is invoiced equal amounts three months and six months after the commencement of the contract. By Fonesell’s Co’s year-end of December 31, 20x5, it has contacted 3,500 of the 10,000 customers. What amounts does Fonesell Co recognize in its financial statements in the year ended December 31, 20x5? revenue of P4,000 and a receivable of P4,000 revenue of P4,000 and a contract liability of P4,000 revenue of P2,800, a receivable of P4,000 and a contract asset of P1,200 revenue of P2,800, a receivable of P4,000 and a contract liability of P1,200 Existence of a Contract – Revenue and Costs Recognition Items 34 to 39 are based on the following information: On March 1, 20x7, Giordano Company enters into a contract to transfer a product to Hotter on July 31, 20x7. The contract is structured such that Warmer is required to pay the full contract price of P57,000 on August 31, 20x7. The cost of the goods transferred is P34,200. Giordano delivers the product to Hotter on July 31, 20x7. The contract exists on: March 1, 20x7 July 31, 20x7 August 31, 20x7 Incomplete data On March 1, 20x7, the amount of accounts receivable to be recorded: None P34,200 P57,000 Incomplete date On July 31, 20x7, the amount of accounts receivable to be recorded: None P34,200 P57,000

Incomplete date

On July 31, 20x7, the amount of revenue to be recorded: None P34,200 P57,000 Incomplete date The entry on July 31, 20x7 to record the contract: No contract exists Credit Unearned Sales revenue Credit Sales revenue Debit Unearned Sales revenue On August 31, 20x7, the amount of revenue to be recorded None P34,200 P57,000 Incomplete date Recognition of Contract Costs Items 40 and 41 are based on the following information: Rema Pulido Outsourcing enters into a contract to operate ReSa Review School’s information technology data center for 3 years. Rema Pulido Outsourcing incurs selling commission costs of P40,000 to obtain the contract. Before performing the services. Rema Pulido Outsourcing designs and builds a technology platform that interfaces with ReSa Review’s systems. That platform is not transferred to ReSa. ReSa promises to pay a fixed fee of P80,000 per month. Rema Pulido Outsourcing incurs the following costs:    

Design services for the platform P60,000; Hardware for the platform P200,000, Software P120,000, and Migration and testing of data center P130,000

The contract costs that should be capitalized: P60,000

P100,000 P220,000 P350,000 The contract costs should be considered revenue expenditure: P100,000 P130,000 P220,000 P350,000 Performance Obligations/ Allocation of Transaction Price Meyer & Smith 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. Container Corporation purchased computer, equipment, installation and training for a total cost of P120,000 on March 15, 20x5. Estimated standalone fair values of the equipment, installation, and training are P75,000, P50,000, and P25,000 respectively. The transaction price allocated to equipment, installation and training: P75,000, P50,000, P25,000 respectively P40,000, P40,000, P40,000 respectively P120,000 for the entire bundle P60,000, P40,000, P20,000 respectively Meyer & Smith 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. Container Corporation purchased computer, equipment, installation and training for a total cost of P120,000 on March 15, 20x5. Estimated standalone fair values of the equipment, installation, and training are P75,000, P50,000, and P25,000 respectively. The journal entry to record the transaction on March 15, 20x4 will include a: Credit to Sales Revenue for P120,000 Debit to Unearned Service Revenue of P25,000 P120,000 for the entire bundle Credit to Service Revenue of P50,000 Bella Pool Company sells prefabricated pools that cost P100,000 to customers for P180,000. The sales price includes an installation fee, which is valued at P25,000. The fair value of the pool is P160,000. The installation is considered a separate performance obligation and is expected to take 3 months to complete. The transaction price is allocated to the pool and the installation is:

P155,676 and P24,324 respectively P160,000 and P25,000 respectively P180,000 and P25,000 respectively P138,378 and P21,622 respectively On January 31, O’Malley Company contracted to have two products built by Taylor Manufacturing for a total of P185,000. The contract specifies that payment will only occur after both products have been transferred to O’Malley Company. O’Malley determines that the standalone prices are P100,000 for Product 1 and P85,000 for Product 2. On August 1, when Product1 has been transferred, the journal entry to record this event include a: Debit to Accounts Receivable for P100,000 Debit to Accounts Receivable for P85,000 Debit to Contract Assets for P85,000 Debit to Contract Assets for P100,000 Sonya, Inc. (SONI) sells a big screen TV package consisting of a 60-inch plasma TV, a universal remote, and onsite installation by SONI staff. The installation includes programming the remote to have the TV interface with other parts of the customer’s home entertainment system. SONI concludes that the TV, remote, and installation service are separate performance obligations. SONI sells the 60-inch TV separately for P17,000, sells the remote separately for P1,000 and offers the installation service separately for P2,000. The entire package sells for P19,000. How much revenue would be allocated to the TV, the remote, and the installation service, respectively? P16,150; P950; P1,900 P17,100; P0, P1,900 P18,050; P950; P0 P19,000; P0; P0 Items 47 to 49 are based on the following information: Sonya, Inc. (SONI) sells a big screen TV package consisting of a 60-inch plasma TV, a universal remote, and onsite installation by SONI staff. The installation includes programming the remote to have the TV interface with other parts of the customer’s home entertainment system. SONI concludes that the TV, remote, and installation service are separate performance obligations. SONI sells the 60-inch TV separately for P17,500, sells the remote separately for P1,000 and offers the entire package P19,000. SONI does not sell the installation service separately. SONI is aware that other similar vendors charge P1,500 for the installation service. SONI also estimated that it incurs approximately P1,000 of compensation and other costs for SONI staff to provide the installation service. SONI typically charges 40% above cost on similar sales. Estimate the stand-alone selling price of the installation service using the adjusted market assessment approach?

P0 P500 P1,400 P1,500 Estimate the stand-alone selling price of the installation service using the estimated cost plus a margin approach? P0 P500 P1,400 P1,500 Estimate the stand-alone selling price of the installation service using the residual approach? P0 P500 P1,400 P1,500 Mercedes Consultants provided Benz Construction with assistance in implementing various cost-savings initiatives. Mercedes’ contract specifies that it will receive a flat fee of P50,000 and an additional P20,000 if Benz reaches a pre specified target amount of cost savings. Mercedes estimates that there is a 20% chance that Benz will achieve the cost-savings target. Assuming Mercedes uses the expected value as its estimate of variable consideration, calculate the tra...