CHAPTER 9: CONSIGNMENT SALES

Introduction  Through mark-up on the final

selling price
 An entity applies
 In some arrangements
o PFRS 15
o Consignee receives both
 Revenue from contracts with
 Markup
customers
 Commission
 Supersedes PAS 18
 Commission
 Revenue
o Consignor
Consignment Arrangements  Expense
o Consignee
 Under a consignment arrangement
 Income
o An entity (consignor) delivers to
 Normally, consignee
another party (consignee)
o Deducts commission from the amount
 Who undertakes to sell the
remitted to the consignor
goods to end customers in
 In cases where commission is given in advance
behalf of the consignor
o Consignor records the advance
 Consignor recognizes revenue
commission
o ONLY when the consignee sells the
 As receivable
consigned goods to end customers
 Not cost of inventory
 Because this is the only time
o When sold to end customer
that the consignor
 Derecognize receivable
relinquishes control over the
 Recognize commission
goods
expense
 Consigned goods
 When goods are sold to end customers
o Remain in the consignor’s inventory
o Consignor
 Until they are sold to end
 Recognizes revenue at gross
customers
amount of consideration
 Consignee records the consigned goods
 Sales price agreed
o Only through memo entries
with the consignee
 Freight and Other Incidental costs
o Consignee
o That the consignor incurs
 Recognizes revenue
 Are capitalized as cost of the
 At commission or fee
consigned goods
to which it is entitled
 Repair costs for damages
 It is uncommon
o Expenses
o For a consignor to be notified for
 If the consignor shoulders the freight and
every sale
other incidental costs
o There are scheduled dates instead
o When reimbursable
 Depending on the
 Consignee records it as a
arrangement
receivable from the consignor
o If not reimbursable Principal vs Agent Considerations
 Considered as expense (additional guidelines according to PFRS 15)
 In a typical consignment  When another party is involved in providing
o Consignee is entitled to a commission goods or services to a customer
 Based on the consignor’s o The entity shall determine whether it
sales price is acting as
 In other arrangements  Principal
o As the it is sold to the end customer  Agent
the consignee as if purchases it  Principal
o Consignee earns income o If it controls the good or service
  Before it is transferred to a exchange for the other party’s goods or
customer services
 However, entity is not a principal if it obtains
legal time (only momentarily)
o Before transferred to a customer
 Principal
o May personally satisfy a performance
obligation
o Or it may engage another party or a
subcontractor
 To satisfy some or all of a
performance obligation, on its
behalf
o When the performance obligation is
satisfied
 The principal
 Recognizes revenue
at the gross amount
of consideration
 Agent
o Is its performance obligation is to
arrange the provision of goods or
services
 By another party
o When performance obligation is
satisfied
 The agent
 Recognizes revenue
at the commission or
fee to which it is
entitled to
 Indicators that an entity is an agent
o Another party is primarily responsible
for fulfilling the contract
o The entity does not have inventory
risk
 Before or after the goods
have been ordered by a
customer
 During shipping
 On return
o The entity does not have discretion in
establishing prices for the other
party’s goods or services
 The benefit that the entity
receives from those goods or
services
 LIMITED
 The entity’s consideration
o In the form of commission
 The entity is not exposed to credit risk for the
amount receivable from the customer in