IFRS 15 provides a comprehensive framework for revenue recognition, but there are certain special cases that require careful attention. These cases arise in situations where the standard’s general principles may not apply straightforwardly or require additional judgment. Understanding these exceptions is crucial for ensuring accurate revenue recognition in complex scenarios, aligning financial reporting with the true substance of transactions.

Let’s explore each of these cases in more detail to understand the necessary steps for proper revenue recognition in such scenarios.

SALE WITH A RIGHT OF RETURN

Under IFRS 15, for sales with a right of return, revenue is recognized net of expected returns. The seller estimates the expected returns based on historical data or other reasonable expectations and recognizes revenue for the amount expected to be retained.

An entity should recognize:

• Revenue for products that are not expected to be returned.
• A refund liability for products that are expected to be returned.
• An asset for inventory, valued at cost, for products that are expected to be returned.

WARRANTIES

Under IFRS 15, warranties are classified into assurance-type and service-type warranties, with different accounting treatments:

• Assurance-type Warranty: Guarantees the product meets specified criteria for a set period. It is not a separate performance obligation. Revenue is recognized at the point of sale, and a provision for expected warranty costs is recorded under IAS 37.
• Service-type Warranty: Provides additional services beyond the standard warranty. It is a separate performance obligation. Revenue is allocated based on standalone selling price and recognized over the warranty period, typically on a straight-line basis.

DISCOUNT VOUCHER

A discount voucher is a separate performance obligation if it grants the customer a distinct good or service. This occurs when the voucher:

• Gives the customer the right to future goods or services at a discounted price.
• Is not tied to the original sale, but to a future transaction.

In such cases, the transaction price is allocated between the goods/services sold and the voucher based on their relative standalone prices. The amount for the voucher is recorded as deferred revenue and recognized when the voucher is redeemed.

PRINCIPAL VS AGENT

Under IFRS 15, the principal controls goods/services before transfer to the customer and recognizes gross revenue. An agent arranges the provision and recognizes only net revenue (commission/fee earned).

Key indicators include:

• Control over the goods or services.
• Inventory risk.
• Pricing discretion.
• Responsibility for fulfilling the contract.

Example: A company selling its own products is a principal. A travel agent selling airline tickets on commission is an agent.

CONSIGNMENT ARRANGEMENT

In a consignment arrangement, the consignor retains control until the goods are sold to the end customer. Revenue is recognized only upon sale by the consignee, not upon delivery to them. The consignor retains inventory, and the consignee earns a commission for facilitating the sale.

BILL-AND-HOLD ARRANGEMENT

Occurs when a seller bills a customer but retains physical possession of goods. Revenue can be recognized if control has transferred, which requires:

• Goods are specifically identified and ready for delivery.
• Customer has a valid reason for delay.
• Customer assumes risks and rewards of ownership.
• Seller cannot redirect the goods elsewhere.

REPURCHASE AGREEMENTS

Under IFRS 15, these agreements involve selling an asset with an obligation or option to repurchase. Common forms include:

• Forward contract – obligation to repurchase.
• Call option – right to repurchase.
• Put option – customer can require the seller to repurchase.

The accounting depends on whether control has transferred and the terms of repurchase. In many cases, these are accounted for as financing arrangements rather than sales.