Revenue – ifrs 15 handbook

Example 24 – Automotive: Not a consignment arrangement
Carmaker D enters into a contract with Automotive Supplier S to deliver 
windscreens for D’s cars. According to the contract, S is required to maintain a 
minimum number of windscreens in D’s warehouse during the contract term. 
Once they have been delivered, S cannot access the windscreens (other than 
for stocktaking). It also has no right to require the windscreens to be returned or 
redirected to another carmaker.
The price of the windscreens is determined when they are delivered to D’s 
warehouse. S has a right to payment for the windscreens either when they are 
moved to D’s assembly line or within six weeks of delivery, whichever is earlier. 
While they are stored at D’s warehouse, D bears any insurance fees and storage 
costs. In addition, it is liable for the risk of loss, theft or damage. However, S 
retains legal title to the windscreens until payment is received. 
According to the relevant legal framework in D’s jurisdiction, goods are deemed 
to be accepted if D does not claim otherwise without an undue delay.
S concludes that the arrangement with D is not a consignment arrangement, 
because:
– it is unable to require D to return the windscreens or to transfer them to a 
third party; and 
– S has an unconditional right to payment for the windscreens once they are 
delivered that is dependent only on the passage of time. D’s actions can only 
influence the timing of the payment. 
Judgement is required to determine the point in time at which control over the 
windscreens is transferred to D. Under this fact pattern, S notes that:
– it is unable to direct the windscreens to another use once they have been 
delivered; 
– it has an unconditional right to payment for windscreens (see above); 
– even though it retains legal title to the windscreens, this is a protective 
measure against D’s failure to pay;
– it has transferred physical possession of the windscreens to D; 
– it has transferred the significant risks and rewards of ownership of the 
windscreens – i.e. the price risk, demand risk and inventory risk; and
– under the local law, D is deemed to accept the windscreens delivered to its 
warehouse if it does not claim otherwise shortly after delivery. 
Therefore, S concludes that control over the parts has been transferred to D on 
delivery to its warehouse.

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5 Step 5 – Recognise revenue when or as the entity satisfies a performance obligation | 159
5.7 Bill-and-hold arrangements
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