Do you use bill and hold with your customers? The new revenue standard makes some changes to the guidance. Watch PwC's Michele Marino as she describes bill and hold transactions, the impact of the new revenue standard (ASC 606), and criteria that must be met.
Hi, I'm Michele Marino, a director in PwC's National Office.
The new revenue standard is effective for many companies in 2018, and there are some changes to the accounting for bill-and-hold arrangements. In this video, I want to highlight some of these changes.
Bill-and-hold arrangements arise when a customer is billed for goods that are ready for delivery, but they are not shipped to the customer until a later date. To determine the appropriate timing of revenue recognition, companies must assess whether control has transferred to the customer, even though the customer does not have physical possession of the goods.
A company will need to meet certain additional criteria for a customer to have obtained control in a bill-and-hold arrangement in addition to the general criteria in the standard related to determining when control transfers. First, a bill-and-hold arrangement should have substance. For example, a substantive purpose could exist if the customer requests the bill-and-hold arrangement because it lacks the physical space to store the goods, or if goods previously ordered are not yet needed due to the customer's production schedule. Additionally, the goods must be identified as belonging to the customer, they cannot be used to satisfy orders for other customers and they must be ready for delivery upon the customer's request.
A customer that can redirect or determine how the goods are used, or that can otherwise benefit from the goods, has likely obtained control of the goods.
Certain requirements under existing guidance that must be met for revenue to be recognized in bill-and-hold arrangements were eliminated by the new standard. Most notably, the new standard does not require a fixed delivery schedule to meet the bill and hold criteria.
An entity that has transferred control of the goods and met the bill-and-hold criteria to recognize revenue needs to consider whether it is providing custodial services in addition to selling the goods. If so, the transaction price will need to be allocated between the goods and the custodial service.
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