In certain technology transactions, the entity fulfils its obligations and invoices the customer for the work performed, but does not ship the goods until a later date. These transactions, often called ’bill-and-hold‘ transactions, are usually designed this way at the request of the customer for a variety of reasons, including the customer’s lack of storage capacity or its inability to use the goods until a later date.
The criteria for determining whether a bill-and-hold transaction qualifies for revenue recognition under IFRS 15 are similar to IAS 181. Most bill-and-hold transactions that qualify for revenue recognition under IAS 18 will also qualify for revenue recognition under IFRS 15. However, consideration of a separate custodial performance obligation (as discussed in IFRS 15 B 80) may be new to IFRS preparers, as this was not addressed in IAS 18. Technology bill-and-hold arrangements
“Bill and hold” is a term used to refer to an arrangement between a buyer and a seller in which the buyer is billed for goods or services that have not actually been received. The idea is that the products will be provided to the buyer on an agreed upon later date. As part of the arrangement, the seller agrees to set aside those products for the buyer, provide temporary storage for those products, and execute the delivery for the order once payment is received and recorded. Technology bill-and-hold arrangements
A bill and hold arrangement can be illustrated with the example of a company that places an order for a large number of pencils with a vendor. The buyer may want to pay for the order in the current accounting period but not want to take possession of the pencils until a later date, possibly due to the need to clear space for the pencils in a storage area. In this scenario, the seller agrees to process the order, and segregate the pencils to fill the order from the rest of its inventory. During this period, the buyer remits payment for the order and the seller records the purchase in the accounting receivables. On the date agreed upon by the two parties, the seller ships the pencils to the address provided by the buyer. Upon receipt of the shipped pencils, the order is considered filled by both parties. Technology bill-and-hold arrangements