PRACTICE QUESTIONS – RECEIVABLES
Same instructions as the first practice questions.
1. Receivables are financial assets because they are
a. Cash equivalents.
b. Equity instruments of another entity.
c. Contractual, rights to receive cash or another financial asset from another entity.
d. Contractual rights to exchange financial assets or financial liabilities with another entity
under conditions that are potentially favorable to the entity.
2. Which statement is Incorrect regarding PFRS 15?
a. The standard outlines a single comprehensive model for entities to use in accounting for
revenue arising from contracts with customers.
b. The standard supersedes revenue recognition guidance in PAS 18 Revenue and PAS 11
Construction Contracts and related interpretations.
c. The core principle is that an entity recognizes revenue to depict the transfer of promised
goods or services to customers in an amount that reflects the consideration to which the entity
expects to be entitled in exchange for those goods or services.
d. None, all the statements are correct.
3. Arrange in proper sequence the five-step approach that entities will follow in
recognizing revenue in accordance with PFRS 15:
I. Determine the transaction price
II. Identify the contract(s) with the customer
III. Identify the separate performance obligations in the contract
IV. Recognize revenue when (or as each performance obligation is satisfied
V. Allocate the transaction price to separate performance obligations
a. I, I, III, IV and V
b. II, III, I, V and IV
c. III, II, I, V and IV
d. II, III, V, I and IV
4. For PFRS 15 to apply, a contract with a customer should meet which of the following
conditions?
I. The contract has been approved by the parties to the contract and are committed to
perform their respective obligations.
II. Each party's rights in relation to the goods or services to be transferred can be
identified.
III. The payment terms for the goods or services to be transferred can be identified.
IV. The contract has commercial substance.
V. It is probable that the consideration to which the entity is entitled to in exchange for
the goods or services will be collected.
a. I, II, III, IV and V
b. I, III, IV and V
c. I, II, III and V
d. I, II, III and IV
5. Performance obligation is a promise in a contract with a customer to transfer to the
customer
a. A good or service (or a bundle of goods or services) that is distinct.
b. A series of distinct goods or services that are substantially the same and that have the same
pattern of transfer to the customer.
C. Either a or b.
d. Neither a nor b.
6. Which statement is incorrect regarding transaction
price in accordance with PFRS 15?
a. Transaction price is the amount of consideration to which an entity expects to be entitled in
exchange for transferring promised goods or services to a customer, excluding amounts
collected on behalf of third parties.
b. An entity shall consider the terms of the contract and its customary business practices to
determine the transaction price.
c. The nature, timing and amount of consideration promised by a customer affect the estimate
of the transaction price.
d. The consideration promised in a contract with a
customer may include fixed amounts but not variable amounts.
7. When determining the transaction price, an entity shall consider the effects of:
I. Variable consideration
II. Constraining estimates of variable consideration
III. The existence of a significant financing component in the contract
IV. Non-cash consideration
V. Consideration payable to a customer
a. I, II, III, IV and V
b. III, IV and V only
c. II, III, IV and V only
d. Ill and IV only
8. For the purpose of determining the transaction price, an entity shall assume?
a. That the goods or services will be transferred to the customer as promised in accordance
with the existing contract.
b. That the contract may be cancelled.
c. That the contract may be renewed
d. That the contract may be modified.
9. Where a contract has multiple performance obligations, an entity will allocate the
transaction price to the performance obligations in the contract by reference to their
relative
a. Standalone selling prices.
b. Fair values.
c. Net realizable values.
d. Any of the above.
10. Which statement is incorrect regarding recognition of revenue?
а. Revenue is recognized as control is passed, either over time or at a point in time. v
b. Control of an asset is defined as the ability to direct the use of and obtain substantially all of
the remaining benefits from the asset.
c. Control includes the ability to prevent others from directing the use of and obtaining the
benefits from the asset.
d. The benefits related to the asset are the potential cash flows that may be obtained only
directly,
11. At Initial recognition, an entity shall measure trade receivables at their transaction price
(as defined in PFRS 15) if the trade receivables
a. Do not contain a significant financing component in accordance with PFRS 15.
b. When the entity applies the practical expedient in accordance with paragraph 63 of PFRS 15.
C. Either a or b.
d. Neither a nor b.
12. Receivables not measured initially at their transaction price are measured initially at
a. Fair value
b. Fair value less costs to sell
c. Fair value minus transaction costs that are directly attributable to the acquisition of the
financial asset.
d. Fair value plus transaction costs that are directly attributable to the acquisition of the
financial asset.
13. In accordance with PFRS 9, receivables shall be measured at amortized cost if
a. The receivables are held within a business model whose objective is to hold assets in order to
collect contractual cash flows.
b. The contractual terms of the receivables give rise on specified dates to cash flows that are
solely payments of principal and interest on the principal amount outstanding.
C. Both a and b.
d. Either a or b.
14. The ideal measure of short-term receivables in the statement of financial position is the
discounted value of the cash to be received in the future, failure to follow this practice
usually does not make the statement of financial position misleading because
a. The amount of the discount is not material.
b. Most short-term receivables are not interest bearing.
c. The allowance for uncollectible accounts includes a discount element.
d. Most receivables can be sold to a bank or factor.
15. Accounts receivable are normally reported at the:
a. Present value of future cash receipts.
b. Current value plus accrued interest.
c. Expected amount to be received.
d. Current value less expected collection costs.
16. New Corp has the following data relating to accounts receivable at the end of the
current year:
Accounts receivable P1,880,000
Allowance for doubtful accounts 94,000
Allowance for sales discounts 10,000
Allowance for sales returns 15,000
Allowance for freight 3,000
What is the net realizable value of New Corp.'s accounts receivable?
а. P2,708,000
b. P1,880,000
C. P1,758,000
d.P1,752,000
17. The following information pertains to an entity's accounts receivable:
Accounts receivable, beginning P 3,800,000
Credit sales 18,000,000
Sales returns 280,000
Collections 15,300,000
Promissory notes received in payment 2,000,000
of accounts receivable
Accounts receivable written off as 160,000
uncollectible
Collections on accounts previously 60,000
written off
Accounts receivable used as collateral 1,000,000
The entity's accounts receivable balance at the end of the period is
а. Р6,060,000
b. P4,060,000
C. P3,060,000
d. P3,000,000
18. On June 9, Seller Corp. sold merchandise with a list price of P5,000 to Buyer on account.
Seller allowed trade discounts of 30% and 20%. Credit terms were 2/15, n/40 and the
sale was made FOB shipping point.
Seller prepaid P200 of delivery costs for Buyer as an accommodation. On June 25, Seller
received from Buyer a remittance in full payment amounting to
a. P2,744
b. P2,944 5,000 X .7 X .8 = 2,800
2,800 + 200 = 3,000
c. P2,940
d. P3,000
19. The Pacifier Company uses the net price method of accounting for cash discounts. In
one of its transactions on December 15, Pacifier sold merchandise with a list price of
P500,000 to à client who was given a trade discount of 20% and 15%.
Credit terms were 2/10, n/30. The goods were shipped FOB destination, freight collect.
On December 20, the client returned damaged goods originally billed at P60,000. Total
freight charges paid by the buyer amounted to P7,500. What is the net realizable value
of this receivable on December 31?
a. P272,500
b. P274,400
C. P280,000
d. P333,200
20. An advantage of using the net price method of recording cash discounts on credit sales
Is
a. It simplifies recording of sales returns and allowances.
b. It eases communication with customers about their balances.
c. It requires less record-keeping efforts than the gross method
d. It properly reflects current period sales revenue.
21. In accordance with PFRS 15, how should volume rebates and/or discounts on goods or
services applied retrospectively be accounted for?
a. As variable consideration.
b. As customer options to acquire additional goods or services at a discount.
C. Either a or b.
d. Neither a nor b.
22. In accordance with PFRS 15, how are variable considerations accounted for?
a. Included in transaction price.
b. Included in the transaction price only to the extent that it is highly probable that a significant
reversal in the. amount of cumulative revenue recognized will occur when the uncertainty
associated with the variable consideration is subsequently resolved.
c. Included in the transaction price only to the extent that it is highly probable that a significant
reversal in the amount of cumulative revenue recognized will not occur when the uncertainty
associated with the variable consideration is subsequently resolved.
d. Excluded from transaction price.
23. To account for the transfer of products with a right of return (and for some services that
are provided subject to a refund), an entity shall recognize
a. Revenue for the transferred products in the amount of consideration to which the entity
expects to be entitled (therefore, revenue would not be recognized for the products expected
to be returned).
b. A refund liability.
c. An asset (and corresponding adjustment to cost of sales) for its right to recover products
from customers on settling the refund liability.
d. All of these.
24. Which statement is incorrect regarding a refund liability?
a. An entity shall recognize a refund liability if the entity receives consideration from a customer
and expects to refund some or all of that consideration to the customer.
b. A refund liability is measured at the amount of consideration received (or receivable) for
which the entity does not expect to be entitled
c. The refund liability shall be updated at the end of each reporting period for changes in
circumstances.
d. Changes in refund liability shall be recognized as other income or expense.
25. Which statement is incorrect regarding an asset recognized for an entity's right to
recover products from a customer on settling a refund liability?
a. It shall initially be measured by reference to the former carrying amount of the product (for
example, inventory) less any expected costs to recover those products (including potential
decreases in the value to the entity of returned products).
b. At the end of each reporting period, an entity shall update the measurement of the asset
arising from changes in expectations about products to be returned.
c. An entity shall offset the asset and the refund liability.
d. None, all the statements are correct.
26. Ely Corp. sold merchandise to various customers with a list price of P1,000,000. The
customers were given trade discounts of 20% and 15%. Credit terms were 2/10, п/30.
Based on experience, Ely expects that 50% will avail of the cash discounts and 10% will
return the products. In accordance with PFRS 15, Ely should recognize revenue of
a. P680,000
b. P605,200
c. P673,200
d. P598,400
27. Seller Corporation sold P21,000 of merchandise during the month of December, which
was charged to national credit card. On December 15, Seller bills the independent
national credit card company for these sales and is assessed a 5% service charge. On
December 21, a customer returned merchandise originally sold for P2,000 and Seller
notifies the credit card company of the return. On December 29, the credit card
company remitted amount owed to Seller.
Which statement is incorrect?
a. In recording this sale, seller should record an account receivable from the credit card
company.
b. Seller received P18,050 from, the credit card company.
c. Seller should recognize P18,050 as net revenued.
d. None, all the statements are correct.
28. Bangui Company provides for doubtful accounts expense at the rate of 3 percent of
credit sales. The following data are available for the current year:
Allow. for Doubtful Accounts, Jan. 1 P 54,000
Accounts written off as uncollectible 60,000
Collection of accounts written off 15,000
Credit sales, year-ended December 31 3,000,000
The allowance for doubtful accounts balance at December 31, after adjusting entries,
should be
а. P45,000
b. P90,000
c. P84,000
d. P99,000
29. What is the effect on net income at the time of the collection of an account previously
written off under each of the following methods?
Direct write-off Allowance method
a No effect Increase
b Increase No effect
c Increase No effect
d Increase No effect
30. On Jan. 1, 2023, the balance of accounts receivable of Burgos Corp. was P5,000,000 and
the allowance for doubtful accounts on same date was P800,000. The following data
were gathered:
Credit sales Write-offs Recoveries
2020 P10,000,000 P250,000 P20,000
2021 14,000,000 400,000 30,000
2022 16,000,000 650,000 50,000
2023 25,000,000 1,100,000 145,000
Doubtful accounts are provided for as percentage of credit sales. The accountant calculates the
percentage annually by using the experience of the three years prior to the current year. How
much should be reported as 2023 doubtful accounts expense?
a. P750,000
b. P330.000
c. P812,500
d.P875,000
31. John Corp. has the following data relating to accounts receivable for the year ended
Dec. 31, 2023:
Accounts receivable, Jan. 1, 2023 P480,000
Allowance for doubtful accounts,
Jan. 1, 2023 19,200
Sales during the year, all on account,
terms 2/10, 1/15, n/60 2,400,000
Cash received from customers during
the year 2,560,000
Accounts written off during the year 17,600
An analysis of cash received from customers during the year revealed that P1,411,200, was
received from customers availing the 10-day discount period, P792,000 from customers availing
the 15-day discount period, P4,800 represented recovery of accounts written-off, and the
balance was received from customers paying beyond the discount period.
The allowance for doubtful accounts is adjusted so that it represents certain percentage of the
outstanding accounts receivable at year end. The required percentage at Dec. 31, 2023 is 125%
of the rate used on Dec. 31, 2022.
The doubtful accounts expense for 2023 is
a. P6,880
b. P7,120
c. P8,720
d. P8,960
32. The accounts receivable subsidiary ledger of Besao Corporation shows the following
information:
Customer 12/31Account balance Invoice Date Invoice Amount
Maybe, Inc. P140,720 12/06 P56,000
11/29 84,720
Perhaps Co. 83,680 09/02 48,000
08/20 35,680
Pwede Corp. 122,400 12/08 80,000
10/25 42,400
Perchance Co. 180,560 11/17 92,560
10/09 88,000
Possibly Co. 126,400 12/12 76,800
12/02 49,600
Luck, Inc. 69,600 09/12 69,600
Total P723,360 P723,360
The estimated bad debt rates below are based on the Corporation's receivable collection
experience.
Age of accounts Rate
0 - 30 days 1%
31 - 60 davs 1.5%
61 - 90 days 3%
91 - 120 days 10%
Over 120 days 50%
The Allowance for Doubtful Accounts had a credit balance of P14,000 on Dec. 31, 2023, before
adjustment.
The adjusting journal entry to adjust the allowance for doubtful accounts as of Dec. 31, 2023
will include a debit to doubtful accounts expense of
a. P52,795
b. P24,795
c. P38,795
d. P14,000
33. Which statement Is incorrect regarding presentation of receivables in the statement of
financial position?
a. Trade receivables are reported under current assets.
b. Non-trade receivables are included in the line item trade and other receivables' if they are
expected to be realized within twelve months after the reporting period.
c. Non-trade receivables are reported as non-current if they are not expected to be realized
within twelve months after the reporting period
d. None of these.
34. The following are normally included in the line item trade and other receivables, except
a. Advances to subsidiaries and affiliates
b. Advances to officers and employees
c. Receivables from sale of securities or property other than inventory.
d. Dividends and interest receivable.
35. In accordance with PFRS 15, a receivable is
a. An entity's right to consideration that is unconditional (only the passage of time is required
before payment of that consideration is due).
b. An entity's right to consideration in exchange for goods or services that the entity has
transferred to a customer when that right is conditioned on something other than the passage
of time (for example, the entity's future performance).
c. An entity's obligation to transfer goods or services to a customer for which the entity has
received consideration (or the amount is due) from the customer.
d. A party that has contracted with an entity to obtain goods or services that are an output of
the entity's ordinary activities in exchange for consideration.
36. If an entity reported a contract liability in its statement of financial position, it means
that
a. The entity has no receivables.
b. Neither the entity nor the customer has performed.
C. The entity's performance is more than the customer's payment.
d. The entity's performance is less than the customer's payment.
37. The objective of the disclosure requirements in PFRS 15 is for an entity to disclose
sufficient information to enable users of financial statements to understand the nature,
amount, timing and uncertainty of revenue and cash flows arising from contracts with
customers. To achieve that objective, an entity shall disclose qualitative and quantitative
information about
a. Its contracts with customers.
b. The significant judgements, and changes in the judgements, made in applying PFRS 15 its
contracts with customers.
c. Any assets recognized from the costs to obtain or fulfill a contract with a customer.
d. All of these.
38. PFRS 7 requires disclosures about qualitative and quantitative information about
exposure to risks arising from financial instruments. These risks include
a. The risk that one party to a financial instrument will cause a financial loss for the other party
by failing to discharge an obligation.
b. The risk that an entity will encounter difficulty in meeting obligations associated with
financial liabilities that are settled by delivering cash or another financial asset.
C. The risk that the fair value or future cash flows of a financial instrument will fluctuate
because of changes in market prices.
d. All of these.
39. For each type of risk arising from financial instruments, an entity shall disclose:
a. The exposures to risk and how they arise.
b. Its objectives, policies and processes for managing the risk and the methods used to measure
the risk.
C. Any changes in (a) or (b) from the previous period.
d. All of these.
40. In relation to receivables, PFRS 7 does not require an entity to disclose
a. Receivables pledged as collateral.
b. Information about credit risk that enable users of financial statements to understand the
effect of credit risk on the amount, timing and uncertainty of future cash flows.
C. Significant concentrations of credit risk arising from receivables.
d. Fair value of short-term trade receivables.
