FRS 115 – Specific area: Consignment Arrangements

Previously under FRS 18 illustrative example, when the buyer is acting, in substance, as an agent, the sale is treated as a consignment sale.

Under FRS 115, this determination is based on whether control of the inventory has passed to the consignee upon delivery.

Indicators that an arrangement is a consignment arrangement include, but are not limited to, the following:

(a) the product is controlled by the entity until a specified event occurs, such as the sale of the product to a customer of the dealer or until a specified period expires;

(b) the entity is able to require the return of the product or transfer the product to a third party (such as another dealer); and

(c) the dealer does not have an unconditional obligation to pay for the product (although it might be required to pay a deposit).


An entity uses a distributor network to supply its products to end-customers. Upon receipt of the products, the distributor receives legal title of the goods and is required to pay the entity for the product. Under their agreements the distributors may return unsold product within 90 days. Once the distributors sell the products to the end-customer, the entity has no further obligations in relation to the products, and the distributors have no further return rights.

In this example, the entity has determined its relationship with the distributors is not a consignment agreement. That is, because the distributor has legal title to the products without any restrictions, an obligation to pay for the products when received and the entity cannot make distributors return the products, the entity determines that control has transferred to the distributor when the products are delivered.

In addition, because the entity offers a right of return to the distributor, the entity would be required to estimate the transaction price (considering expected returns) and record a liability for the amount of returns expected during the 90-day return period.

Alternatively, if the distributors are not obligated to pay for the products received until they are sold to the end-customer and the distributors have the option to return any unsold products, the entity would conclude that control of the products does not transfer until they are sold to the end-customer. In that case, the contracts with the distributor would be consignment arrangements.