When does a consignor recognize revenue for goods shipped on consignment?

In a consignment arrangement, the consignor (the brand) ships goods to the consignee (the retailer) but retains ownership until the consignee sells the goods to an end customer. Revenue is recognized by the consignor only when the consignee sells the goods to the final buyer, because that is when control transfers from the consignor.

Why Not at Shipment?

When the consignor ships goods to the consignee, no transfer of control occurs. The consignee is essentially acting as an agent holding inventory on the consignor's behalf. The consignor still bears the risk of obsolescence, can recall the goods, and the consignee can return unsold items.

Indicators of a Consignment (per IFRS 15)

• The consignor controls the goods until a specified event (sale to end customer).
• The consignor can require return of the goods or transfer to a different consignee.
• The consignee has no unconditional obligation to pay until the goods are sold.

Example: Cobalt Apparel ships 800 jackets (cost $45 each, retail $110 each) to Meridian Department Store on consignment. At month-end, Meridian has sold 300 jackets to consumers. Meridian takes a 25% commission on each sale.

Cobalt's entries at month-end:

• Revenue recognized: 300 x $110 = $33,000
• Cost of goods sold: 300 x $45 = $13,500
• Commission expense: 300 x $110 x 25% = $8,250
• Net profit from consignment sales: $33,000 - $13,500 - $8,250 = $11,250

The remaining 500 jackets still on Meridian's floor remain in Cobalt's inventory on Cobalt's balance sheet -- even though the goods are physically located at Meridian's store.

Key Balance Sheet Impact

The consignor reports consignment inventory as an asset. The consignee does not report these goods in its own inventory. This is a common exam trap -- students often assume the entity holding the goods should show them in inventory.

Exam Tip: If a question describes goods shipped to another entity with a right-of-return to the shipper, look for consignment indicators. Revenue is not recognized until the final sale to the end customer.

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