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What Are Bill And Hold Transactions? [#1 ANSWER]

Once the seller has determined that it has transferred control of the goods to the customer, the seller must consider whether the custodial or storage service and the goods are separate performance obligations 😁 Storage service is a performance obligation if the customer benefits from the service separately and it is distinct from other promises 🙌 If a contract states that the seller will provide storage service to the customer for a certain period, this is a separate performance obligation 😎 A portion of the transaction should go to cover the had cost of storage. As the service is rendered, revenue related to storage services would be recorded over time. Most bill-and hold arrangements will consider storage service to be an additional performance obligation. [1]
The bill-and-hold procedure isn’t a GAAP violation in and of itself, but it can be difficult to audit. It has been long associated with financial fraud. The fraud-risk factor description for SAS number no. 82 is Bill-and hold. 82: Consideration of Fraud during a Financial Statement Audit. These are highly unusual transactions with complex substance that raise difficult questions about form. A bill-and hold deal is where the customer buys goods but retains ownership until shipment request. One example is when a municipality buys the equipment needed to build a sanitation system and then delays shipping until it’s complete. Even though there has not been any physical exchange, the seller might be able book revenue. It is legal business practice to use a bill and hold arrangement for this purpose. Two conditions must be met: (1) the seller has realized or made it possible, (2) the buyer has earned. Last modified by Saly from Busto Arsizio (Italy) 86 days ago [2]
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Based on a brand new article by annualreporting.info, excerpts from IFRS Standards come from the Official Journal of the European Union (© European Union, https://eur-lex.europa.eu). Each country may allow or require the use of IFRS Standards (locally authorized and/or altered) for any or all public listed companies. Information on this site is intended to be used for educational and general purposes and not as an alternative for professional advice. You should check the specific status of IFRS Standards in every jurisdiction. You use this website at your own risk. Annualreporting.org is an independent website. It is not affiliated, endorsed or otherwise associated with the IFRS Foundation. Official information regarding IFRS Standards can be found at IFRS.org, or your local representative. Raynette Lombardo (Juiz De Fora Brazil), last edited 96 Days ago [3]
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Further reading is available at smartcapitalmind.comAn example of bill and hold arrangements is a business placing an order for large quantities of pencils from a vendor. The buyer may be willing to pay the invoice in the current period. However, they might not like to have the pencils until the next accounting period. Need to clear space For the pencils to be kept in a safe place. This scenario allows the seller to accept the order and to segregate pencils for filling the order from other inventories. During the period, payment is made by the buyer and recorded in the account receivables. The pencils are shipped to the address given by the buyer by the seller on the agreed date. Both parties are deemed to have fulfilled the order upon receipt of the pencils. Malachi Hanks (Manaus, Brazil) for the tip. [4]
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Steel Producer must recognize revenue as soon as the pipe is put into the warehouse. Drill Co has taken control. Drill Co asked for the transaction to be done on a bill and hold basis. This means that Steel Producer must recognize revenue when the pipe is placed into its warehouse. Drill Co has taken control of the pipe. Steel Producer also needs to evaluate whether part of the transaction price should go to custodial services. Jaemi Spicer is the credit for these latest changes. [5]

Article references

  1. https://www.revenuehub.org/bill-and-hold-arrangements/
  2. https://www.journalofaccountancy.com/issues/1999/oct/carmichl.html
  3. https://annualreporting.info/intfinrepstan/ifrs-15-bill-and-hold-arrangements/
  4. https://www.smartcapitalmind.com/what-does-bill-and-hold-mean.htm
  5. https://viewpoint.pwc.com/content/pwc-madison/ditaroot/us/en/pwc/accounting_guides/revenue_from_contrac/revenue_from_contrac_US/chapter_8_practical__US/85billandhold_arrang_US.html
Mehreen Alberts

Written by Mehreen Alberts

I'm a creative writer who has found the love of writing once more. I've been writing since I was five years old and it's what I want to do for the rest of my life. From topics that are close to my heart to everything else imaginable!

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