University - Year 2

Accounting Theories

CONSIGNED GOODS
 Consigned goods are included in the consignor’s inventory.
 The consignee records the consigned goods received through memo entry only.
 Freight and other incidental costs of transferring consigned goods to the consignee form part of the
cost of the consigned goods. Repair costs for damages during shipment and storage and other
maintenance costs are charged as expense.

INVENTORY HELD OR SOLD UNDER FINANCING AGREEMENTS

 ownership is normally not transferred when inventories are used as collateral security for a loan
 therefore, the inventory remains in the borrower’s (pledgor’s) inventory

RETENTION OF LEGAL TITLE UNDER INSTALLMENT SALE

 A seller is not precluded from transferring ownership over an inventory sold in an installment sale
where possession is transferred to the customer but the seller retains legal title solely to protect the
collectability of the amount of consideration.
 In such case, the inventory is excluded from the seller’s inventory and included in the buyer’s
inventory.

BILL & HOLD ARRANGEMENT

 A bill-and-hold arrangement is a contract (of sale) under which the seller bills the buyer for goods
sold but the seller retains physical possession until the goods are transferred to the buyer at a
future date.
 The goods sold under a bill and hold sale are excluded from the seller’s inventory and included in
the buyer’s inventory at the time of sale when title passes to the buyer and he accepts billing,
provided:
a. the reason for the bill-and-hold arrangement must be substantive (for example, the buyer has
requested the arrangement);
b. the product must be identified separately as belonging to the buyer;
c. the product currently must be ready for physical transfer to the buyer; and
d. the seller does not have the ability to use the goods or to direct them to another customer.