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ACCTRAN Engage: Kaya Ulit Natin To Partner!

This document describes a contract between ABC Co. and a customer involving the transfer of a license and equipment. It asks to identify: 1) Two performance obligations - the license and equipment, which are distinct and transferred at different times 2) A transaction price of PHP 80,747 from a down payment and note receivable 3) An allocation of the transaction price to the performance obligations based on their standalone selling prices 4) The recognition of revenue when each performance obligation is satisfied - PHP 41,409 for the equipment on 1/15/2021 and PHP 39,338 for the license on 2/1/2021

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Kristine Santander
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182 views2 pages

ACCTRAN Engage: Kaya Ulit Natin To Partner!

This document describes a contract between ABC Co. and a customer involving the transfer of a license and equipment. It asks to identify: 1) Two performance obligations - the license and equipment, which are distinct and transferred at different times 2) A transaction price of PHP 80,747 from a down payment and note receivable 3) An allocation of the transaction price to the performance obligations based on their standalone selling prices 4) The recognition of revenue when each performance obligation is satisfied - PHP 41,409 for the equipment on 1/15/2021 and PHP 39,338 for the license on 2/1/2021

Uploaded by

Kristine Santander
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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ACCTRAN Engage: Kaya ulit natin to Partner!

Question 1
On January 1, 2021, ABC Co. enters into a contract with a customer to transfer a license.

 the initial franchise fee is P100,000 payable as follows: 20% cash down payment upon signing
of the contract and the balance is payable in 4 equal annual installments starting December 31,
2021. The appropriate discount rate is 12%.
 The contract also requires ABC Co. to transfer equipment to the customer. The equipment has a
cost of P30,000 and a stand-alone selling price of P40,000.
 The license has a stand-alone selling price of P38,000.
 ABC Co. regularly sells the license and the equipment separately.
 The license provides the customer the right to use the entity's intellectual property as it exists
at the point in time at which the license is granted.
 The equipment is transferred to the customer on January 15, 2021 while the license is
transferred to the customer on February 1, 2021.

Requirements: Apply "Steps 2 to 5" of PFRS 15 to identify the following:

A. The performance obligation(s) in the contract. State how the performance obligation(s)
are satisfied

Two separate performance obligations in the contract are as follows:


1. License (satisfied at a point of time)
2. Equipment (satisfied at a point of time)
The promise to grant the license and the promise to transfer the equipment are distinct because
the customers benefit from each other's promise independently or together with other
resources that are available. Thus the license together with the equipment that is delivered
before opening the franchise and the equipment is used in the franchise pr sold in an amount can
benefit the customer. The license and equipment are separately identifiable.

B. The transaction price

Cash down payment (100Kx20%) ₱20,000


PV of note receivable: [(100k x 80%)/4] x PV of ordinary annuity @ 12%, n=4 60,747
Transaction Price ₱80,747

C. Allocation of the transaction price

Performance Stand-alone Selling


Allocation Transaction Price
Obligations Prices
(80,747 x 38,000/
License 38,000 39,338
78,000)
(80,747 x 40,000/
Equipment 40,000 41,409
78,000)
Total 78,000 80,747
D. The recognition of revenue from the contract

Recognize revenue when a performance obligation is satisfied. ₱41,409 is allocated to the


equipment will be recognized as revenue on January 15, 202, while the ₱39,338 allocated to the
license will be recognized as revenue on February 1, 2021

E. Provide the necessary journal entries in January and February 2021

Entry on Jan 1, 2021


1/1/2021 Cash on Hand ₱20,000
Note Receivable 80,000
Contract Liability ₱80,747
Unearned Interest Income 19,253
#
1/15/2021 Contract Liability 41,409
Revenue 41,409
#
1/15/2021 Cost of Sales 30,000
Revenue 30,000

Entry on March 1, 2021

2/1/2021 Contract Liability 39,338


Revenue 39,338

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