 How do we determine if risks and rewards were transferred from manufacturer to

dealer?

Consider whether the dealer can return with no penalties

Price paid by dealer determined at time of delivery

Dealer can use inventory with no penalties

Insurance costs are borne by the dealer

 How is consignment inventory (sale and return) accounted for if risks and rewards are
transferred?

Manufacturer

Dr Receivable

Cr Revenue

Dealer

Dr Purchases

Cr Payables

Dr Inventory

Cr COS

 How is consignment inventory (sale and return) accounted for if risks and rewards are
not transferred?

Manufacturer

No sale and inventory is held in SOFP

Dealer

Nothing happens

 What is a sale and buyback?

Seller sales to buyer for cash and the seller can repurchse the asset in 12 months time

 How do we determine if risks and rewards were transferred from manufacturer to

dealer?
o Consider if initial sale was made at FV or not
 o Seller is obligated to buy back the asset as per arrangements i.e. there's an
obligation to buy back the asset
o Any option to repurchase is likely to be exercised
 How is sale and buyback accounted for if risks and rewards are transferred?

Buyer

Dr Bank

Cr Asset

Cr P/L

 How is sale and buyback accounted for if risks and rewards are not transferred?

Entity receives a loan

Dr Cash

Cr Loan

Dr Finance Cost

Cr Loan