Chapter 3
Revenue from Contracts with Customers
PROBLEM 1: TRUE OR FALSE
1. FALSE – PFRS 15 applies only to contracts with customers
2. FALSE – A contract can be oral, written, or implied by the entity’s
customary business practices.
3. TRUE
4. TRUE
5. FALSE
6. FALSE – see #9
7. FALSE - A performance obligation that is not satisfied over time
is presumed to be satisfied at a point in time.
8. TRUE
9. TRUE
10. TRUE – e.g., when the consideration is received in advance but
the delivery of the goods or services is deferred beyond
one year.
PROBLEM 2: FOR CLASSROOM DISCUSSION
1. Answer: No. The “probable of collection” criterion under PFRS 15 is not
met because the customer’s ability and intention to pay may be in doubt.
This is evidenced by the following:
a. the customer intends to repay the loan (which has a significant
balance) primarily from income derived from its restaurant business
(which is a business facing significant risks because of high
competition in the industry and the customer’s limited experience);
b. the customer lacks other income or assets that could be used to
repay the loan; and
c. the customer’s liability under the loan is limited because the loan is
non-recourse.
The entity accounts for the non-refundable ₱50,000 payment as a deposit
liability. The entity continues to account for the initial deposit, as well as any
future payments of principal and interest, as a deposit liability, until such time
that the entity is able to conclude that it is probable that the entity will collect
the consideration or one of the following events has occurred.
a. the entity has no remaining obligations to transfer goods or services to
the customer and all, or substantially all, of the consideration promised
by the customer has been received by the entity and is non-refundable;
or
b. the contract has been terminated and the consideration received from
the customer is non-refundable.
1
, The entity continues to assess the contract to determine whether the
“probable of collection” criterion is subsequently met or whether the events
above (‘a’ or ‘b’) have occurred.
2. Answer: Yes, it is a performance obligation. Explicit.
Because the promise of maintenance services is a promise to transfer goods
or services in the future and is part of the negotiated exchange between the
entity and the distributor, the entity determines that the promise to provide
maintenance services is a performance obligation. The entity concludes that
the promise would represent a performance obligation regardless of whether
the entity, the distributor, or a third party provides the service. Consequently,
the entity allocates a portion of the transaction price to the promise to provide
maintenance services.
3. Answer: Yes, it is a performance obligation. Implicit.
4. Answer: No, it is not a performance obligation. The maintenance
services shall be accounted for under PAS 37 Provisions,
Contingent Liabilities and Contingent Assets.
5. Solution:
Estimated
stand-alone
selling As
Product Estimation method prices Allocation allocated
N/A (Stand-alone (100 x
X price) 50 50/150) 33
Adjusted market (100 x
Y assessment 25 25/150) 17
Expected cost plus a (100 x
Z margin (50 x 150%) 75 75/150) 50
Total 150 100
6. Answer: The performance obligation is satisfied over time because
of the following reasons:
a. The development of the professional opinion does not create an
asset with alternative use to the entity because the professional
opinion relates to facts and circumstances that are specific to the
customer. Therefore, there is a practical limitation on the entity’s
ability to readily direct the asset to another customer.
b. The entity has an enforceable right to payment for its performance
completed to date for its costs plus a reasonable margin, which
approximates the profit margin in other contracts.
The entity recognizes revenue over time by measuring the progress towards
complete satisfaction of the performance obligation.
7. Solution:
2
Revenue from Contracts with Customers
PROBLEM 1: TRUE OR FALSE
1. FALSE – PFRS 15 applies only to contracts with customers
2. FALSE – A contract can be oral, written, or implied by the entity’s
customary business practices.
3. TRUE
4. TRUE
5. FALSE
6. FALSE – see #9
7. FALSE - A performance obligation that is not satisfied over time
is presumed to be satisfied at a point in time.
8. TRUE
9. TRUE
10. TRUE – e.g., when the consideration is received in advance but
the delivery of the goods or services is deferred beyond
one year.
PROBLEM 2: FOR CLASSROOM DISCUSSION
1. Answer: No. The “probable of collection” criterion under PFRS 15 is not
met because the customer’s ability and intention to pay may be in doubt.
This is evidenced by the following:
a. the customer intends to repay the loan (which has a significant
balance) primarily from income derived from its restaurant business
(which is a business facing significant risks because of high
competition in the industry and the customer’s limited experience);
b. the customer lacks other income or assets that could be used to
repay the loan; and
c. the customer’s liability under the loan is limited because the loan is
non-recourse.
The entity accounts for the non-refundable ₱50,000 payment as a deposit
liability. The entity continues to account for the initial deposit, as well as any
future payments of principal and interest, as a deposit liability, until such time
that the entity is able to conclude that it is probable that the entity will collect
the consideration or one of the following events has occurred.
a. the entity has no remaining obligations to transfer goods or services to
the customer and all, or substantially all, of the consideration promised
by the customer has been received by the entity and is non-refundable;
or
b. the contract has been terminated and the consideration received from
the customer is non-refundable.
1
, The entity continues to assess the contract to determine whether the
“probable of collection” criterion is subsequently met or whether the events
above (‘a’ or ‘b’) have occurred.
2. Answer: Yes, it is a performance obligation. Explicit.
Because the promise of maintenance services is a promise to transfer goods
or services in the future and is part of the negotiated exchange between the
entity and the distributor, the entity determines that the promise to provide
maintenance services is a performance obligation. The entity concludes that
the promise would represent a performance obligation regardless of whether
the entity, the distributor, or a third party provides the service. Consequently,
the entity allocates a portion of the transaction price to the promise to provide
maintenance services.
3. Answer: Yes, it is a performance obligation. Implicit.
4. Answer: No, it is not a performance obligation. The maintenance
services shall be accounted for under PAS 37 Provisions,
Contingent Liabilities and Contingent Assets.
5. Solution:
Estimated
stand-alone
selling As
Product Estimation method prices Allocation allocated
N/A (Stand-alone (100 x
X price) 50 50/150) 33
Adjusted market (100 x
Y assessment 25 25/150) 17
Expected cost plus a (100 x
Z margin (50 x 150%) 75 75/150) 50
Total 150 100
6. Answer: The performance obligation is satisfied over time because
of the following reasons:
a. The development of the professional opinion does not create an
asset with alternative use to the entity because the professional
opinion relates to facts and circumstances that are specific to the
customer. Therefore, there is a practical limitation on the entity’s
ability to readily direct the asset to another customer.
b. The entity has an enforceable right to payment for its performance
completed to date for its costs plus a reasonable margin, which
approximates the profit margin in other contracts.
The entity recognizes revenue over time by measuring the progress towards
complete satisfaction of the performance obligation.
7. Solution:
2
