QUESTION 16 Illustration 16 Manufacturer M enters into a 60-day consignment contract to ship 1,000 dresses to Retailer A’s stores. Retailer A is obligated to pay Manufacturer M $ 20 per dress when the dress is sold to an end customer. During the consignment period, Manufacturer M has the contractual right to require Retailer A to either return the dresses or transfer them to another retailer. Manufacturer M is also required to accept the return of the inventory. State when the control is transferred.
Solution
Manufacturer M determines that control has not been transferred to Retailer A on delivery, for the following reasons:
a) Retailer A does not have an unconditional obligation to pay for the dresses until they have been sold to an end customer;
b) Manufacturer M is able to require that the dresses be transferred to another retailer at any time before Retailer A sells them to an end customer; and
c) Manufacturer M is able to require the return of the dresses or transfer them to another retailer
Manufacturer M determines that control of the dresses transfers when they are sold to an end customer i.e. when Retailer A has an unconditional obligation to pay Manufacturer M and can no longer return or otherwise transfer the dresses.
Manufacturer M recognizes revenue as the dresses are sold to the end customer
