Bill-and-hold
A bill-and-hold arrangement is one in which an entity bills a customer for a product but keeps physical possession until a later date. Revenue is recognised before shipment only if control has passed: there is a substantive reason, the product is identified as the customer's, ready for transfer, and cannot be used or redirected by the entity.
Standard references
- ASC 606606-10-55-81 to 55-84
- IFRS 15paragraphs B79–B82
- Ind AS 115paragraphs B79–B82
Worked example
Illustrative: 20 hardware appliances at $4,000 each ($80,000). The customer asks the vendor to store them until its data centre is ready; the units are tagged to the customer and cannot be redirected. Storage is a separate service with an SSP of $1,000.
- All four criteria are met, so control of the appliances has passed at billing.
- Allocate $80,000 by relative SSP: appliances $80,000 × 80,000 / 81,000 = $79,012.35; storage $80,000 × 1,000 / 81,000 = $987.65.
- Recognise $79,012.35 now; recognise $987.65 over the storage period.
Result: Most revenue at billing, with a small custodial-service obligation deferred.
Illustrative figures for explanation only, not taken from a real contract.
Common mistakes
- Recognising revenue on a bill-and-hold requested for the vendor's convenience.
- Missing the custodial service as a separate performance obligation.
- Not confirming the goods cannot be used to fill other orders.