Revenue – ifrs 15 handbook

Example 22 – Retail: Consignment arrangement
Manufacturer M enters into a 60-day consignment contract to ship 1,000 
dresses to Retailer R’s stores. R is obliged to pay M 20 per dress when the 
dress is sold to an end customer. During the consignment period, M has the 
contractual right to require R to either return the dresses or transfer them to 
another retailer. M is also required to accept the return of the inventory.
M determines that control has not transferred to R on delivery, for the 
following reasons:
– R does not have an unconditional obligation to pay for the dresses until they 
have been sold to an end customer;
– M is able to require that the dresses be transferred to another retailer at any 
time before R sells them to an end customer; and
– M is able to require the return of the dresses or transfer them to another 
retailer. 
M determines that control of the dresses transfers when they are sold to an 
end customer – i.e. when R has an unconditional obligation to pay M and can no 
longer return or otherwise transfer the dresses. M recognises revenue as the 
dresses are sold to the end customer.
Example 23 – Automotive: Consignment arrangement
Carmaker C requires Automotive Supplier S to deliver a predetermined number 
of brake lightbulbs to C’s warehouse based on a forecast production plan. 
However, legal title over the lightbulbs and a right to payment arise only when 
the parts are retrieved from the warehouse and moved to C’s assembly line. 
Brake lightbulbs produced by S can also be sold to other carmakers and S has 
the contractual right to require C to return the parts or deliver them to another 
carmaker. S is also required to accept any excess lightbulbs returned by C. 
S determines that control over the lightbulbs has not transferred to C on delivery 
to C’s warehouse because:
– C does not have an unconditional obligation to pay for the lightbulbs until they 
have been moved to its assembly line; and
– S is able to require that the lightbulbs be transferred to another carmaker any 
time before C installs them in its cars. 
S determines that control of the lightbulbs transfers when they are moved to C’s 
assembly line – i.e. when C has an unconditional obligation to pay S and can no 
longer be asked to return or transfer the goods.

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158 | Revenue – IFRS 15 handbook