acyava1 ifrs 15 + ltcc

Problem 45: Using the zero profit method, the contract revenue for the year is:

a. Zero

b. Equal to the cost incurred recognized during the year

c. Equal to the cost incurred recognized during the year that are probable of recovery

d. None of the choice

C

Problem 46: The excess of the Construction in Progress over Progress Billings is treated as:

a. Current asset

b. Current liability

c. Other asset

d. Non-current asset

A

Problem 47: Which of the following may affect the revenue recognized by an entity on construction contract?

I. Incentive payments

II. Penalties

III. Variation in contact work (change of contract design)

IV. Cost escalation

a. I, II and III

b. I, II and IV

c. II, III and IV

d. All of these

D

Problem 48: It is an entity's right to consideration in exchange for goods and services that the entity has transferred to a customer when that right is conditioned on something other than passage of time.

a. Contract receivable

b. Construction in progress

c. Contract asset

d. Contract liability

C

Problem 50: It is an entity's obligation to transfer goods or services to customer for which the entity received consideration from the customer.

a. Progress billings

b. Advances from customers

c. Contract liability

d. Contract asset

C

Problem 51: A promised of goods or services is distinct if:

I. The customer can benefit from the good or service either on its own or together with other resources that are readily available to customer.

II. The promise to transfer the good or service is separately identifiable from other promises in the contract.

a. I only

b. II only

c. Both I and II

d. Neither I and II

C

Problem 52: When the company changes its percentage of completion of the construction project every year, how shall the accounting change be treated? 

a. It shall be accounted for as a change in accounting policy treated by retrospective application or with cumulative effect in the beginning retaining earnings at the date of change.

b. It shall be accounted for as a change in account estimate treated by prospective application to the date of change and future date profit or loss.

c. It shall be accounted for as a prior period error treated by retrospective restatement or with cumulative effect in the beginning retaining earnings at the date of discovery of error.

d. It shall be accounted for as an equity transaction to be adjusted in the share premium or other comprehensive income as the case may be.

B

Problem 53: A company uses the percentage of completion method to account for a three year construction contract. Which of the following would be used in the calculation of the income recognized in the first year?

a. Collection of progress billings.

b. Progress billings

c. Mobilization fee

d. Cost Incurred

D

Problem 54: When the company decides to change its accounting for construction contract from percentage of completion to cost recovery method, how shall the accounting change be treated?

a. It shall be accounted for as a change in accounting policy treated by retrospective application or with cumulative effect in the beginning retaining earnings at the date of change.

b. It shall be accounted for as a change in account estimate treated by prospective application to the date of change and future date profit or loss.

c. It shall be accounted for as a prior period error treated by retrospective restatement or with cumulative effect in the beginning retaining earnings at the date of discovery of error.

d. It shall be accounted for as an equity transaction to be adjusted in the share premium or other comprehensive income as the case may be.

A

Problem 55: It is a construction contract in which the contractor agrees to a fixed contract price, or a fixed rate per unit of output, which in some cases is subject to cost escalation clauses.

a. Fixed price contract

b. Cost plus Variable Fee contract

c. Cost plus Fixed Fee contract

d. Both A and C

A

Problem 56: All of the following could be a valid reasons why the expected revenue from a fixed price construction contract has increased from the original contract price, except

a. The contractor has incurred additional costs due to errors made by its employees

b. The contractor has agreed variations to the contract with the client.

c. The costs in the contract have increased and the contract includes cost escalation clause.

d. The contractor would receive an incentive payment if work continues ahead of schedule and it is probable that specified performance standards are met or exceeded.

A

Problem 57: In accounting for a long term construction contract for which there is a projected profit, the balance in the Construction in Progress account at the end of the first year of work using the percentage of completion method would be

a. Lower than the zero profit method

b. Higher than zero profit method

c. The same as zero profit method

d. Zero

B

Problem 58: Which statement is INCORRECT when the outcome of the construction contract cannot be estimated reliably?

a. Contract revenue and contract cost shall be recognized by reference to the stage of completion of the contract activity at the end of the reporting period.

b. Revenue shall be recognized only to the extent of the contract costs incurred that is probable will be recoverable.

c. Contract costs shall be recognized as an expense in the period which they are incurred.

d. An expected loss on the construction contract shall be recognized as an expense immediately.

A

Problem 59: The following costs shall be capitalized as part of construction in progress or contract costs, except

a. Costs of hiring and moving of plant and equipment to and from the contract site.

b. Systematically, rationally and consistently allocated construction overheads and borrowing costs.

c. Costs that are specifically chargeable to the customer under the terms of the contract may include some general administration costs and development costs for which reimbursement is specified in the terms of the contract.

d. General and research and development costs for which reimbursement is not specified in the contract.

D

Problem 60: Which of the following costs shall be excluded in the contract costs of construction contract?

a. Costs that relate directly to the specific contract.

b. Costs that are directly attributable to contract activity in general and can be allocated to the contract.

c. Such other costs as are specifically chargeable to the customer under the terms of the contract.

d. Selling costs such as advertisement expense or commissions of real estate agents or brokers.

D

Problem 61: The percentage of completion must be used when certain condition exists. Which of the following is not one of those necessary conditions?

a. Total contract revenue can be measured reliably.

b. The buyer can be expected to satisfy some of the obligation under the contract.

c. It is probable that the economic benefits associated with the contract will flow.

d. Estimates of progress toward completion, revenues and costs can be estimated reliably.

B

Problem 62: When there is a significant increase in the estimated total contract costs but the increase does not eliminate the entire profit in the contract. Which of the following statement is correct?

a. Under the percentage of completion method, only the estimated cost increase requires a current period adjustment of the excess gross profit recognized on the project in prior period.

b. Under both percentage of completion and zero profit methods, the estimated costs increase requires a current period adjustment of excess gross profit recognized on the project in prior periods.

c. No current period adjustment is required.

d. Under the zero profit method, only the estimated cost increase requires a current period adjustment of excess gross profit recognized on the project in prior periods.

A

Problem 63: In the first year of construction of a building project, the long-term construction company recognized gross loss for the year ended under the percentage of completion method. Which of the following statements will be certain?

I. The ending balance of construction in progress is equal to ending balance of progress billing.

II. The construction revenue for the year is equal to ending balance of construction in progress.

III. The cost of sales for the year is equal to ending balance of progress billing.

IV. The ending balance of construction in progress under cost method will be the same to the ending balance of construction in progress under percentage of completion method.

a. II and IV

b. IV only

c. I and III

d. I, II and IV

B

Problem 64: Aside from the initial amount of revenue agreed in the long-term construction contract, additional revenues may be recognized by the contractor (1) to the extent that it is probable that they will result in revenue and (2) they are capable of being reliably measured. Which of the following will not be considered as additional contract revenue by a contractor?

a. Variation in contract work as instructed by the customer regarding the scope of work to be performed.

b. Claim that the contractor may seek to collect from the customer for customer caused delays or errors in specification or design.

c. Incentive payments to be paid to the contractor if specified performance standards are met or exceeded or for early completion of the contract.

d. Gain on sale of scrap materials from construction.

D

Problem 65: When should the anticipated loss on a long term construction contract be recognized under zero profit method and percentage of completion method?

Zero Profit Method, Percentage of Completion Method

a. Completion of contract, Completion of contract

b. Immediately, Immediately

c. Immediately, Completion of contract

d. Completion of contract, Immediately

B

Problem 66: In the computation of the realized gross profit in the final year of construction contract under percentage of completion method, which of the following would be used?

Total Estimated, Cost to Complete, Income Previously Recognized

a. Yes, Yes, No

b. Yes, Yes, Yes

c. No, Yes, Yes

d. Yes, No, Yes

B

Problem 67: Cost estimate at the end of the second year indicate a loss will result on completion of the entire contract. Which of the following statements is correct?

a. Under the zero profit method, when the progress billing exceeds the accumulated costs, the amount of estimated loss is reported as a current liability.

b. Under zero profit method, when the construction in progress exceeds the progress billings, the estimated loss is added to the accumulated costs.

c. Under zero profit method, the loss is not recognized until the year the construction is completed.

d. Under the percentage of completion method, the gross profit in the first year must not be changed.

A

Problem 68: If the cost recovery method is used, what is the basis for determining the income to be recognized in the second year of a three year contract?

a. Cumulative actual costs incurred only

b. Incremental cost for the second year only 

c. Latest available estimated costs

d. No income would be recognized in year 2

D

Problem 69: The first step in the process for revenue recognition is to:

a. Identify the separate performance obligations in the contract

b. Identify the contract with the customer

c. Determine the transaction price

d. Allocate the transaction price to separate performance obligation 

e. Recognize revenue when a performance obligation is satisfied

B

Problem 70: The fourth step in the process for revenue recognition is to:

a. Identify the separate performance obligations in the contract

b. Identify the contract with the customer

c. Determine the transaction price

d. Allocate the transaction price to separate performance obligation

e. Recognize revenue when a performance obligation is satisfied

D

Problem 71: On March 1, 20x1, Sol Corp. contracted to build two buildings by SMDC for a total contract price of P20 million. The contract specifies that payment will only occur after both buildings have completed and transferred to SMDC. The standalone selling price of building no. 1 is P8 million and the standalone selling price of building no. 2 is P12 million. On December 1, 20x1, building no. 1 was completed and transferred, the journal entry to record this transaction include a:

a. Debit to Accounts Receivable, P8 million

b. Debit Contract Asset, P8 million

c. Debit Contract Asset, P12 million

d. Debit Accounts Receivable, P12 million

B

Problem 72: If the entity has unconditional right to payment for performance obligation satisfied it shall be:

a. Recorded as Receivable in the balance sheet

b. Recorded as Contract Asset in the balance sheet

c. Recorded as Contract Liability in the balance sheet

d. Not recognized

A

Problem 73: A contract does not exist if:

a. It was not executed by the parties in writing

b. The parties have reached unanimous consent regarding the termination of the contract.

c. The contract has no fixed term and can be terminated by either party at anytime

d. Each party has the unilateral enforceable right to terminate a wholly unperformed contract without compensating the other party.

D

Problem 74: A contract

a. Is an agreement that creates enforceable rights and obligations

b. Must be in writing to become enforceable

c. Does not need to have commercial substance

d. It is enforceable if the parties in the contract can unilaterally terminate the contract.

A

Problem 75: A contract is wholly unperformed if:

a. The entity is not yet entitled to receive any amount of consideration in exchange for promised goods or services

b. The entity has not yet received any consideration in exchange for promised goods or services

c. The entity has not yet transferred any promised goods or services to the customer

d. All of the above

D

Problem 49: The entity will combine two or more contracts entered at or near at the same time with the same customer into a single contract, except:

a. The contractor has submitted separate proposals on the separate component of the project.

b. The contract are negotiated as a package with a single commercial objective;

c. The amount of consideration to be paid in one contract depends on the price or performance of the other contract.

d. The goods or services promised in the contracts (or some goods or services promised in each of the contracts) are a single performance obligation.

A

Problem 76: The criteria to be used in order for the transaction price to be adjusted for the time value of money?

a. If the time period between the transfer of goods or services and receipt of consideration is greater than 2 years

b. If a significant financing component is present

c. When an advance payment is required to obtained a long term contract

d. Where the entity expects that it may accept consideration which is lower than what is promised in the contract.

B

Problem 77: Transaction price of the contract

a. Excludes the time value of money if the contract involves significant financing component

b. Excludes discounts, rebates, coupons

c. Excludes non cash consideration such as donation, equipment and labor

d. Is the amount of consideration that a company expects to receive from a customer.

D

Problem 78: Which of the following situations would not allow the performance obligations to be satisfied over time?

a. The performance of the entity creates an asset with alternative use to the entity and the entity may not be able to enforce the right to payment for performance completed to date

b. The customer simultaneously receives and consumes the benefits provided by the performance of the entity

c. The performance of the entity does not create an asset with alternative use to the entity and the entity has an enforceable right to payment for performance completed to date

d. The performance of the entity creates or enhances an asset that the customer controls as the asset is created or enhanced

A

Problem 79: If there is multiple performance obligations exists in a contract, it should be accounted as a single performance obligation if:

a. The goods or services are highly interrelated or interdependent

b. The performance obligations are distinct but are interrelated

c. The goods or services are distinct in the contract

d. None of the choices

A

Problem 80: What is the key factor in identifying a separate performance obligation?

a. The passing of the risks and rewards to the customers

b. The identification of the payment terms

c. The enforceability of the contract

d. The distinctiveness of the good or service

D

Problem 81: The noncash consideration is:

a. Recorded based on the fair value of equivalent goods or services

b. Recorded based of the fair value goods or services received

c. Recorded based of the original cost goods or services paid by the customer

d. Recorded based on the fair value goods or services given up.

B

Problem 82: The consideration payable to customers

a. Includes prompt settlement discount which increase revenues

b. Reduces the consideration received and the revenue to be recognized

c. Includes discounts which reduces the cost of purchases to the company

d. Includes a volume rebate which increases the cost to the customer.

B

Problem 83: If the entity has multiple performance obligations which are partially completed it shall be accounted as:

a. Receivable

b. Contract Liability

c. Contract Asset

d. Revenue

C

Problem 84: The entity will use the expected method to estimate the variable consideration if:

a. The entity has a large number of contracts with similar characteristics

b. The entity use the most likely amount in range of possible outcomes

c. The entity's contract has two possible outcomes

d. The entity has a small number of contracts with similar characteristics.

A

Problem 85: How does the entity estimate the amount of variable consideration?

a. The choice between the expected value or most likely amount

b. The expected value method or most likely amount whichever best predicts the consideration

c. Whichever is higher between the expected value or most likely amount

d. Whichever is lower between the expected value or most likely amount

B

Problem 86: Which of the following statements is/are correct?

Statement 1: If the good or service is not highly dependent or interrelated with other promised goods or services in the contract, the promise good or service should be accounted for separately.

Statement 2: When an entity sells a bundle of goods at a discount, the discount should be allocated to all goods in that bundle.

a. Statement 1 is correct

b. Statement 2 is correct

c. Both statements are correct

d. Both statements are incorrect

A

Problem 87: Under PFRS 15, an entity shall recognize revenue on the transfer of goods or services to customer using:

a. Net amount

b. Residual amount

c. Gross Amount

d. Aggregated amount

C

An entity transfers control of a good or service over time and, therefore, satisfies a performance obligation and recognizes revenue over time, if one of the following criteria is met, except:

 

A. the customer simultaneously receives and consumes the benefits provided by the entity’s performance as the entity performs.

 

B. the entity has received non-refundable upfront fees from the customer.

 

C. the entity’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced.

 

D. the entity’s performance does not create an asset with an alternative use to the entity and the entity has an enforceable right to payment for performance completed to date.

B

Which of the following statements is/are incorrect?

Statement I. In the final year of a long-term construction contract the balance of the progress billing and construction in progress will be the same and should be closed.

Statement II. The periodic collections received from customers will reduce the amount of progress billings recognized.

Statement III. The revenue recognition for long-term construction contracts accounted for as a performance obligation satisfied over time is also applicable to real estate developers and brokers/dealers. 

A. Statement III only

B. Statements II and III only.

C. Statements I only

D. Statement II only

B