Revenue – ifrs 15 handbook

partner agreement.

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256 | Revenue – IFRS 15 handbook
At least a few days before products are offered for sale on Y’s website, Y issues 
a purchase order to the vendor that ‘reserves’ a specified number of units, at 
a fixed price, that reflects its estimate of the number of units that it expects to 
sell to customers. The purchase orders are cancellable, meaning that Y does not 
have inventory risk – i.e. if it cannot sell the goods to its customers, then Y can 
cancel the purchase order without recourse or penalty. 
Despite the purchase orders being cancellable by Y, Y concludes that they 
convey control over the specified products in these arrangements before the 
products are transferred to customers. Therefore, Y is acting as principal. 
Y’s conclusion is based on the following regarding the purchase orders. 
– Before Y’s customers buy one of the specified products, the vendor cannot 
direct the use of the reserved units subject to the purchase order to another 
customer (or for its own use) and cannot obtain substantially all of its 
remaining benefits. Specifically, the vendor cannot obtain the remaining 
benefits in terms of cash flows from sale because the vendor cannot sell the 
product to another party while it is being held for Y. Also, the vendor cannot 
realise any beneficial change in value during the hold period because the 
price to Y for the products is defined in the purchase order.
– From the time Y issues the purchase order until it either sells the product to 
one of its customers or cancels the purchase order (i.e. releasing the hold), 
Y has the sole ability to direct the product to one of its customers and obtain 
substantially all of its remaining benefits, including by adjusting the price that 
it charges for the product on the website.
The control evaluation is further supported by the fact that Y’s reserved unit 
count ’depletes’ as it completes sales to customers. Each unit sold and shipped 
to a Y customer is a unit that Y (1) controlled before it was transferred to the 
customer and (2) directed the vendor to pick and ship at Y’s direction.
Based on its evaluation, Y concludes that it has the ability to direct the use of 
and obtain substantially all of the remaining benefits from the products (and can 
prevent others from doing so). Therefore, Y concludes that it is the principal in its 
arrangements with the vendor. Y notes that the principal-agent indicators do not 
provide any disconfirming evidence to this conclusion because these indicators 
are mixed. Specifically, Y controls the price to the customer but it does not have 
inventory risk with respect to the products and it shares responsibility with the 
vendor for fulfilment to the customer.