Consignment arrangement
In a consignment arrangement an entity delivers product to a dealer or distributor that does not obtain control of it, so no revenue is recognised on delivery. Indicators include the entity keeping control until a specified event such as sale to an end customer, and its ability to require the product's return.
Standard references
- ASC 606606-10-55-79 to 55-80
- IFRS 15paragraphs B77–B78
- Ind AS 115paragraphs B77–B78
Worked example
Illustrative: 100 devices are delivered to a reseller on consignment at $500 each. The reseller sells 30 to end customers this quarter.
- No revenue on delivery of the 100 devices.
- Revenue for the 30 sold through: 30 × $500 = $15,000.
- The other 70 stay in the vendor's inventory, at cost, at the reseller's location.
Result: $15,000 of revenue this quarter; 70 units remain the vendor's inventory.
Illustrative figures for explanation only, not taken from a real contract.
Common mistakes
- Recognising revenue on shipment to the consignee.
- Missing consignment-like terms in sell-through distributor agreements.
- Losing track of inventory held at consignee locations.