A bill and hold agreement is a common practice in many industries. Under this agreement, a seller can recognize revenue for goods that are not delivered to the buyer yet, but are being held in storage at a third-party warehouse. As per IFRS 15, the new revenue recognition standard, a bill and hold arrangement is only recognized when certain criteria are met.
According to IFRS 15, a bill and hold arrangement meets the criteria and revenue recognition is allowed if the following conditions are met:
1. The seller must have a substantive reason for holding back the delivery of the goods.
2. The goods that are held back must be separately identified as belonging to the buyer.
3. The goods must be ready for delivery, and the buyer must have a full legal right to the goods.
4. The buyer must be able to obtain the benefits of the goods under their control.
5. The arrangement must be agreed upon in writing.
If all these conditions are fulfilled, the seller can recognize revenue immediately. However, if any of the above conditions are not met, the seller must defer revenue recognition until the criteria are met.
It is essential to note that a bill and hold agreement under IFRS 15 only applies to contracts that are fulfilled over time, where there is a significant service element. Also, the agreement only applies to the transfer of goods, not services.
In conclusion, a bill and hold arrangement can provide benefits to both the seller and the buyer. However, it is essential to be aware of the IFRS 15 criteria before recognizing revenue under such an agreement. To ensure compliance with the standard, it is advised to seek professional guidance from an expert in IFRS 15.