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(AFAR) PFRS15- FIVE STEP Model

BS Accountancy (New Era University)

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PFRS 15- Five Step Model

Advanced Financial Accounting & Reporting

PFRS15 – FIVE STEP MODEL

Problem A
On January 1, 2020 ABC Co. enters into a contract to deliver product BB and CC to Mr.
X for P200,000. The contract requires that product BB to be delivered first and states that
payment for the delivery of product BB is conditional on the delivery of product CC. the
relative stand alone selling prices of products BB and CC are P40,000 and P60,000,
respectively. The consideration of P200,000 is due only after the entity has transferred
both Products BB and CC.

1. What is the entry in the book of ABC to record the satisfaction of the performance
to deliver the product BB to Mr. X:
A. Receivable 800,000
Revenue 800,000
B. Contract asset 80,000
Revenue 80,000
C. Receivable 200,000
Revenue 200,000
D. Contract Asset 40,000
Revenue 40,000
ANSWER: B

2. What is the entry in the book of ABC upon performance of the obligation to deliver
product CC and to recognize unconditional right to consideration?
A. Receivable 120,000
Revenue 120,000
B. Contract Asset 120,000
Revenue 120,000
C. Receivable 200,000
Contract Asset 80,000
Revenue 120,000
D. Receivable 200,000
Revenue 200,000
ANSWER: C

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PFRS 15- Five Step Model

Advanced Financial Accounting & Reporting

Problem B
Globe Co. agrees to sell ABC Co. voice minutes over a period of 1 year. ABC promises
to pay 0.20 per minute for the first 100,000 minutes. If the minutes purchased exceeded
100,000 minutes, then the price falls to P0.15 per minute for all minutes purchased. If the
price exceeded 150,000 minutes, then the price falls to P0.10 per minute for all
purchased. In effecting the agreement, price shall be reduced retrospectively.

Based on Globe’s experience with similar agreements, it estimates the following outcome:

Less than 100,000 60%

100,000 up to 150,000 30%
Exceeding 150,000 10%

1. What is the estimated transaction price under expected value method?

A. P0.20 per minute
B. P0.175 per minute
C. P0.15 per minute
D. P0.125 per minute
ANSWER: B

Problem C
ABC Company enters into business with AAA Corporation to build a call center. ABC will
receive payment of P150,000 if competed on time of P110,000 if completion is delayed.

ABC estimated the following with respect to timely completion of the asset:
Call center is completed within the time agreed, no delay 95%
Call center is completed but with delay as to turnover 5%
1. What is the estimated transaction price?
A. P110,000
B. P130,000
C. P148,000
D. P150,000
ANSWER: D

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PFRS 15- Five Step Model

Advanced Financial Accounting & Reporting

Problem D
On January 1, 2021, ABC enters into wireless contract in which customer X is provided
with handset and a voice and data plan for P3,500 per month. ABC identified the handset
and wireless plan as separate performance obligations.
The handset can be separately sold by ABC for a price of 20,000 which provides
observable evidence of stand-alone selling price. ABC offers a 12-month service plan
without a phone that includes the same level of services for a price of P2,500 per month.
1. How much is the total transaction price to be allocated to the separate performance
obligation?
A. P20,000
B. P30,000
C. P42,000
D. P50,000
ANSWER: C
2. How much is the transaction price to be allocated to the wireless plan?
A. 16,800
B. 22,000
C. 25,200
D. 30,000
ANSWER: C
3. How much of the transaction price is to be allocated to the handset?
A. 16,800
B. 20,000
C. 22,000
D. 25,200
ANSWER: A

4. On January 1, 2021, what is the entry at the inception of the contract?

A. Receivable 42,000
Revenue 42,000
B. Receivable 42,000
Equipment revenue 16,800
Service revenue 25,200
C. Contract asset 16,800
Equipment revenue 16,800
D. Receivable 25,200
Contract asset 16,800
Equipment revenue 16,800
Service revenue 25,200
ANSWER: C
5. On January 1, 2021, what is the entry to record the monthly billing of monthly fee?
A. Receivable 3,500
Revenue 3,500
B. Receivable 3,500
Equipment revenue 1,400
Service revenue 2,100
C. Receivable 3,500
Service revenue 2,100
Contract asset 1,400
D. Cash 3,500
Receivable 3,500
ANSWER: C

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PFRS 15- Five Step Model

Advanced Financial Accounting & Reporting

Problem E
ABC Corp enters into franchise agreement on June 1, 2021 with Mr. X for a package with
total fee of P500,000. The right granted is to operate the business for 4 years. The terms
of payment provide that a down payment of P180,000 shall be paid and balance is
payable in 4 equal annual payment. Mr. X issued an 8% non-interest bearing note for the
balance (PV factor – 5 decimal places). The agreement provides for a royalty payment of
2% of the monthly gross sales.

The total fee of P500,000 includes the following with their stand alone prices:
• Rights to trade name and market area 250,000
• Machinery and equipment (food stall – cost P80,000) 100,000
• Site location; feasibility studies; training and other services 50,000

All the services inclusive in the package were performed as of October 30, 2021 while the
equipment was installed only on January 1, 2022. The franchise commenced operations
on January 15, 2022. The total gross sales in 2022 amounted to P1,500,000.

1. Using the old franchise accounting (not PFRS 15), how much revenue from initial
franchise fee shall be recognized on December 31, 2021?
A. 0
B. 12,365.25
C. 264,969.60
D. 444,969.60
ANSWER: A

2. Using old franchise accounting, how much revenue shall be recognized on

December 31, 2021?
A. 0
B. 12,365.25
C. 264,969.60
D. 444,969.60
ANSWER: B

3. If ABC satisfied the obligation at point in time as when Mr. X has obtained control
of the rights, how much of the total contract price is allocated to the transfer of
rights, sale of equipment and services? (apply PFRS 15)
A. 250,000; 100,000; and 50,000
B. 312,500; 125,000; and 62,500
C. 278, 106; 111,242.40 and 55,621.20
D. 444,969.40; 0; and 0
ANSWER: C

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PFRS 15- Five Step Model

Advanced Financial Accounting & Reporting

4. If ABC satisfied the obligation at a point in time as when Mr. X has obtained control
of the rights, how much revenue shall be recognized in December 31, 2021?
(PFRS 15)
A. 12,365.25
B. 45,621.20
C. 67,986.45
D. 377,334.65
ANSWER: C

5. If ABC satisfied the obligation at a point in time as when Mr. X has obtained control
of the rights, how much revenue shall be recognized in December 31, 2022?
(PFRS 15)
A. 228,105.87
B. 319,348.22
C. 337,801.67
D. 437,801.85
ANSWER: D

6. If ABC satisfied the obligation and provides access to the rights and must continue
(recognized over time) to perform updates and services, how much revenue shall
be recognized in December 31, 2021? (PFRS 15)
A. 12,365.25
B. 45,621.20
C. 67,986.45
D. 229,222.35
ANSWER: C

7. If ABC satisfied the obligation and provides access to the rights and must continue
to perform updates and services, how much revenue shall be recognized in
December 21, 2022?
A. 45,621.12
B. 155,316.97
C. 166,863.52
D. 229,222.35
ANSWER: D

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PFRS 15- Five Step Model

Advanced Financial Accounting & Reporting

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