What are the bill-and-hold revenue recognition criteria under IFRS 15?

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AcadiFi · Accepted Answer

A bill-and-hold arrangement is one where the seller invoices the customer but retains physical possession at the customer's request. Under IFRS 15, revenue CAN be...

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**Required Criteria for Bill-and-Hold Revenue:**

1. **Substantive reason** -- The customer must have a genuine business reason for the arrangement (e.g., insufficient warehouse space, production scheduling)
2. **Separately identified** -- The goods must be identified separately as belonging to the customer
3. **Currently ready** -- The goods must be ready for physical transfer at any time
4. **No ability to use or direct** -- The seller cannot use the goods or direct them to another customer

**Worked Example -- Solara Components Inc. (fictional)**

Solara manufactures specialized turbine blades for Windmark Energy. Windmark orders 500 blades ($8,000 each = $4M) but asks Solara to hold them because Windmark's installation site won't be ready for 3 months.

| Criterion | Assessment | Met? |
|---|---|---|
| Substantive reason | Site under construction, no storage | Yes |
| Separately identified | Blades tagged with Windmark serial numbers | Yes |
| Currently ready | Packed and inspected, ready to ship | Yes |
| Seller cannot redirect | Contractually committed to Windmark | Yes |

Solara recognizes the $4M revenue upon completion and segregation, even though blades remain in Solara's warehouse.

**Additional Consideration:** Solara may have a separate performance obligation for storage/custody services during the holding period. If so, a portion of the transaction price is allocated to the storage obligation and recognized over time.

Red flags that suggest a bill-and-hold arrangement is NOT legitimate: the seller initiated the arrangement to accelerate revenue, the goods are fungible and not segregated, or the customer has no economic need to defer delivery. Analysts should scrutinize rising receivables paired with stable or growing inventory as a sign of aggressive bill-and-hold practices.

What are the bill-and-hold revenue recognition criteria under IFRS 15?

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