Covid19 Project for Accountants Ferrer/De Jesus/Soriano

IFRS 15: Revenue from Contracts with Customers

Illustrative 1: On August 1, 2028, Ivana Company entered into a contract of sale with Alawi. The
contract is structured such that Ivana must deliver the goods on September 30, 2028 and Alawi must
pay P 80,000 on October 31, 2028. The cost of the goods transferred is P 65,000.
Required: Provide necessary journal entries on:

a. August 1, 2028
b. September 30, 2028
c. October 31, 2028

Illustrative 2: On August 1, 2028, Ivana Company entered into a contract of sale with Alawi. The
contract is structured such that Ivana must deliver the goods on October 31, 2028 and Alawi must pay
P 80,000 on September 30, 2028. The cost of the goods transferred is P 65,000.
Required: Provide necessary journal entries on:

a. August 1, 2028
b. September 30, 2028
c. October 31, 2028

Illustrative 3: On January 1, 2028, Alawi enters into a contract with Ivana for the sale of two mirrorless
camera for P 50,000 each. The contract requires one camera to be delivered on February 14, 2028
and states that the payment for the delivery of the first camera is conditional on the delivery of the
second camera. The second camera is delivered on July 31, 2028 and the payment for the two cameras
was received on September 8, 2028.
Required: Provide necessary journal entries on:

a. January 1, 2028
b. February 14, 2028
c. July 31, 2028
d. September 8, 2028

Illustrative 4: Ivana Corporation has a contract to sell 50,000 boxes of PS-5 to a customer for P 10
million or P 200 per boxes over a three-month period. After the delivery of 30,000 boxes, Ivana modifies
the contract by promising to deliver additional 10,000 boxes of PS-5 for an additional P 1.8 million or P
180 per boxes (which is the standalone selling price of the products at the time of contract modification).
Ivana regularly sells the products separately.
Required:

a. Determine the total revenue that to be recognized after the modification.

b. Determine the revenue that must be recognized if Ivana delivers 5,000 boxes of PS-5 to satisfy
the original contract.
c. Determine the revenue that must be recognized if Ivana delivers 5,000 boxes of PS-5 to satisfy
the new performance obligation.

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Illustrative 5: Ivana Corporation has a contract to sell 50,000 boxes of PS-5 to a customer for P 10
million or P 200 per boxes over a three-month period. After the delivery of 30,000 boxes, Ivana modifies
the contract by promising to deliver additional 10,000 boxes of PS-5 for an additional P 1.8 million or P
180 per boxes. Ivana does not regularly sell the products separately.
Required:

a. Determine the total revenue that to be recognized after the modification.

b. Determine the new selling price per unit.
c. Determine the revenue that must be recognized if Ivana delivers 5,000 boxes of PS-5.

Illustrative 6: Ivana Computers licenses customer-relationship software to GMA Company. In addition

to providing the software itself, Ivana Computers promises to provide consulting services by extensively
customizing the software to GMA’s information technology environment, for a total consideration of P
2,880,000. In this case, Ivana Computers is providing a significant service by integrating the goods and
services (the license and the consulting service) into one combined item for which GMA has contracted.
In addition, the software is significantly customized by Ivana Computers in accordance with
specifications negotiated by Ivana. How many performance obligation/s should be accounted for under
the contract?

Illustrative 7: Ivana Computers manufactures and sells computers that include a warranty to make
good on any defect in its computers for 150 days. In addition, it sells separately an extended warranty,
which provides protection from defects for three years beyond the 150 days. How many performance
obligation/s are present?

Illustrative 8: Ivana enters into a contract with Victory Christian Fellowship to install a music system
together with its software. On January 1, 2028, Victory pays Ivana an upfront fixed fee of P 50,000 for
six months of featured access. Victory also will pay Ivana a bonus of P 30,000 if Victory can use the
music system anytime without experiencing technical difficulty during the six-month period. Ivana
estimates a 70% chance that it will achieve the usage target and receive the P 30,000 bonus.
Required:

a. How much is the expected value of the contract price at inception?

b. How much is the most likely amount of the contract price?
c. Assuming the use of the most likely approach, but that after four months, Ivana concludes that,
due to the high usage of the music system due to weekly worship services, the most likely
outcome is that, it will not receive the P 30,000 bonus. What will be the entry to adjust the bonus
receivable and entry to recognize future revenue as a result of the changed in estimate?
d. Assuming the use of the expected value approach, but that after four months, Ivana concludes
that, due to the high usage of the music system due to weekly worship services, there will only
be 40% chance that the target will be met. What will be the entry to adjust the bonus receivable
and entry to recognize future revenue as a result of the changed in estimate?

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Illustrative 9: Ivana enters into a contract with Victory Christian Fellowship to install a music system
together with its software. On January 1, 2028, Victory pays Ivana an upfront fixed fee of P 50,000 for
six months of featured access. Victory also will pay Ivana a bonus of P 30,000 if Victory can use the
music system anytime without experiencing technical difficulty during the six-month period. Ivana
cannot conclude that it is probable that a significant revenue reversal will not occur in the future.

On April 30, after four months, Ivana concludes that it can make an accurate enough bonus estimate
for it to be probable that a significant revenue reversal will not occur so Ivana estimated a 70% likelihood
that it will receive the bonus and bases its estimate on the most likely amount of P 30,000.

Required:

1. How much revenue is expected to earn for the six-month period at the inception date?
2. How much revenue will be recorded each month?
3. How much bonus receivable will Ivana recognize on April 30?
4. How much revenue will be recognized each month in the final two months of the contract?

Illustrative 10: Ivana enters into a contract with a customer to build a 50-storey building for P
100,000,000, with a performance bonus of P 50,000,000 that will be paid based on the timing of
completion. The amount of the performance bonus decreases by 10% per week for every week beyond
the agreed-upon completion date. The contract requirements are similar to contracts that Ivana has
performed previously, and management believes that there is a 60% probability that the contract will
be completed by the agreed-upon completion date, a 30% chance that it will be completed one week
late, and only a 10% probability that it will be completed two weeks late.
Required:

1. Determine the expected value of the contract price.

2. Determine the most likely value of the contract price.

Illustrative 11: On September 1, 2028, Ivana Company sold goods to Alawi Company in exchange for
a 4-year, noninterest bearing note with a face amount of P 500,000. The goods have a cost on Ivana’s
book of P 200,000.
Required:

1. How much is the transaction price and gross profit if the cash selling price of the goods is P
300,000?
2. How much is the transaction price and gross profit if the cash selling price is not available?
(present value factor of ordinary annuity of 1 for four periods is 0.683 based on an imputed rate
of 10%)

Illustrative 12: On October 1, 2018, Ivana Company sold goods to Alawi Company in exchange of an
equipment. Cost of the equipment is P 20,000 while its fair value is P 35,000. How much revenue must
be recognized by Ivana Company?

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Illustrative 13: On February 14, 2028, Alawi Co. sold merchandise to Ivana for P 60,000 and received
P 60,000 for that sale on March 14, 2028. On March 7, 2028, Alawi made a P 10,000 payment to Ivana
for advertising services that have a fair value of P 7,500.

Required:

1. How much revenue should Alawi Co. record for the merchandise sold to Ivana?
2. How much revenue should Alawi Co. record for the merchandise sold to Ivana if the fair value
of the advertising services cannot be reasonably estimated?

Illustrative 14: Rain, Inc. is a manufacturer of automated whiteboard used in the conduct of CPA
Review. Rain, Inc. has the following arrangement with Ivana CPA Review Center:

a. Ivana purchases the automated whiteboard from Rain at a price of P 1,522,500 and prefer Rain
to do the Installation and Training and Rain agreed on such arrangements.
b. The price of the installation service is estimated to have a fair value of P 435,000.
c. The fair value of the training sessions is estimated at P 217,500.
d. Rain is obligated to pay Rain, Inc the P 1,522,500 contract price upon the delivery and installation
of the automated whiteboard.
e. Rain delivers the automated whiteboard on September 1, 2028 and completes the installation
on November 1, 2028. Training related to the automated whiteboard starts after the installation
and lasts for 5 months. The automated whiteboard has a useful life of 15 years.
f. Cost of the automated whiteboard is P 23,765,000.

Required:

1. Allocate the transaction price to the different performance obligations.

2. How much revenue must be recognized on November 1, 2028?
3. How much revenue must be recognized as of November 1, 2028?
4. How much is the unearned revenue on December 31, 2028?
5. How much is the total revenue for the year 2028?

Illustrative 15: Ivana Company enters into a contract to build (including maintenance) and operates
high rise condominium for a period of 25 years, commencing upon completion of the construction of
the said condominiums. The fixed fee to build and operate the building is P 100,000,000. There is a
provable evidence that the selling price of the building and maintenance is P 30,000,000 and P
21,000,000, respectively but none for operating the condominium. It is determined that the transaction
price must be allocated to the three performance obligations (construction of the building, maintenance,
and operating the condominium).

Required: Allocate the transaction price of P 90,000,000 to the three performance obligations
assuming:
1. The stand-alone selling price of operating the condominium with reference to the price of the
competitors is P 31,000,000.
2. Ivana estimates the total cost that will be incurred to operate the condominium is P 29,500,000.
Normal gross profit of Ivana is 20%.
3. The stand-alone selling price for operating the condominium is highly variable or uncertain
because Ivana hasn’t previously sold the service and hasn’t yet determined a price for it.

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Illustrative 16: Globe Telecom, Inc., a telecommunications operator, entered into a contract with Rain
on March 1, 2027. In line with the contract, Rain subscribes for Globe Telecom’s monthly plan for 24
months and in return Rain receives a free Apple 256 GB Iphone 11 Pro Max handset from Globe
Telecom. Rain is also entitled for monthly network services such as 150 GB of data, unlimited all-net
text, unlimited calls to Globe/TM, and 150 minutes all-net calls. Rain will pay a monthly fee of P 2,499
and a cash out of P 46,800 upon signing of the contract. Rain gets the handset immediately after
contract signing.

Globe Telecoms normally sells monthly plans for P 1,482 per month without handset. The market value
of the Iphone 11 Pro Max is P 82,990.

Required: Assuming the Globe Telecom ask you to apply IFRS 15 with its transaction with Rain. Apply
the 5 steps process to recognize revenue and determine the revenue for the year 2027.

“For I know the plans I have for you, declares the

Lord, plans to prosper you and not to harm you.
Plans to give you hope and a future”

-Jeremiah 29:11
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