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    Chapter 9 - Consignment Sales

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    Mohammad Allem Alegre
    This document discusses accounting for revenue from consignment sales under PFRS 15. It defines a consignment arrangement where an entity delivers goods to another party to sell on its behalf. The consignor only recognizes revenue when goods are sold to end customers. It provides an illustration of the journal entries for a consignment sale. It also discusses the principal versus agent consideration under PFRS 15, noting the indicators that an entity would be considered an agent and recognize revenue as a commission rather than at the gross sale amount.

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    Chapter 9 - Consignment Sales

    Uploaded by

    Mohammad Allem Alegre
    47 views7 pages
    This document discusses accounting for revenue from consignment sales under PFRS 15. It defines a consignment arrangement where an entity delivers goods to another party to sell on its behalf. The consignor only recognizes revenue when goods are sold to end customers. It provides an illustration of the journal entries for a consignment sale. It also discusses the principal versus agent consideration under PFRS 15, noting the indicators that an entity would be considered an agent and recognize revenue as a commission rather than at the gross sale amount.

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    This document discusses accounting for revenue from consignment sales under PFRS 15. It defines a consignment arrangement where an entity delivers goods to another party to sell on its behalf. The consignor only recognizes revenue when goods are sold to end customers. It provides an illustration of the journal entries for a consignment sale. It also discusses the principal versus agent consideration under PFRS 15, noting the indicators that an entity would be considered an agent and recognize revenue as a commission rather than at the gross sale amount.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    47 views7 pages

    Chapter 9 - Consignment Sales

    Uploaded by

    Mohammad Allem Alegre
    This document discusses accounting for revenue from consignment sales under PFRS 15. It defines a consignment arrangement where an entity delivers goods to another party to sell on its behalf. The consignor only recognizes revenue when goods are sold to end customers. It provides an illustration of the journal entries for a consignment sale. It also discusses the principal versus agent consideration under PFRS 15, noting the indicators that an entity would be considered an agent and recognize revenue as a commission rather than at the gross sale amount.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 7

    Consignment Sales

    Chapter 9
    Introduction
    An entity applies PFRS 15 Revenue from Contracts with Customers to
    account for revenues from contracts with customers. PFRS 15 supersedes
    PAS 18 Revenue
    DEFINITION CONSIGNMENT ARRANGEMENT

     An entity (called the ‘consignor’) delivers goods to other party (called


    the ‘consignee’) who undertakes to sell the goods to end customers on
    behalf of the consignor.
     A consignor recognizes revenue only when the consigned goods are
    EXAMPLE sold to end customers. The revenue recognized is the gross amount of
    the sale price agreed with the consignee.
     Consigned goods are included in the consignor’s inventory.
     Freight and other incidental costs of transferring consigned goods to
    the consignee form part of the cost of the consigned goods.
    CONSIDERATION
    ILLUSTRATION: REVENUE
    DEFINITION
    RECOGNITION FROM CONSIGNMENT
    SALES
    ABC Co. consigns goods costing ₱220,000 and with a total sales price of ₱390,000
    to XYZ, Inc. XYZ will be entitled to a 20% commission based on its sales.

    ABC Co. – Consignor XYZ, Inc. - Consignee


    EXAMPLE Memo entry Memo entry
    XYZ, Inc. sells consigned goods costing ₱55,000 for ₱100,000. ABC Co. is
    not notified of the sale.
    ABC Co. – Consignor XYZ, Inc. - Consignee
    No entry Cash 100,000
    CONSIDERATION Commission income
    20,000
    (100,000 x 20%)
    Payable to ABC Co.
    80,000
    ILLUSTRATION: REVENUE
    DEFINITION
    RECOGNITION FROM CONSIGNMENT
    SALES
    XYZ, Inc. makes the weekly remittance of sale proceeds, net of
    commission, to ABC Co.

    ABC Co. – Consignor XYZ, Inc. - Consignee

    EXAMPLE Cash 80,000 Payable to ABC Co. 80,000


    Commission expense 20,000 Cash
    Revenue 80,000
    100,000

    Cost of goods sold 55,000


    Inventory
    CONSIDERATION 55,000
    DEFINITION PRINCIPAL VERSUS AGENT
    CONSIDERATION
    PFRS 15 provides the following additional guidance in accounting for
    consignment arrangements:
     When another party is involved in providing goods or services to a
    customer, the entity shall determine whether it is acting as a principal
    or agent.
    EXAMPLE
     The entity is a principal if it controls the good or service before the
    good or service is transferred to the customer.
     A principal may personally satisfy a performance obligation or it may
    engage another party (for example, a subcontractor) to satisfy some or
    all of a performance obligation on its behalf. When the performance
    CONSIDERATION obligation is satisfied, the principal recognizes revenue at the gross
    amount of consideration.
     The entity is an agent if its performance obligation is to arrange the
    provision of goods or services by another party. When the performance
    obligation is satisfied, the agent recognizes revenue at the commission
    or fee to which it is entitled.
    DEFINITION PRINCIPAL VERSUS AGENT
    CONSIDERATION
    The following are indicators that an entity is an agent (and therefore does
    not control the good or service before it is provided to a customer):
     Another party is primarily responsible for fulfilling the contract;
     The entity does not have inventory risk before or after the goods have
    EXAMPLE been ordered by a customer, during shipping or on return;
     The entity does not have discretion in establishing prices for the other
    party’s goods or services and, therefore, the benefit that the entity can
    receive from those goods or services is limited;
     The entity’s consideration is in the form of a commission; and
    CONSIDERATION  The entity is not exposed to credit risk for the amount receivable from a
    customer in exchange for the other party’s goods or services.

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