Consignment stock, rebates and an unsecured overdue receivable
Sokha Foods Ltd, a rice-snack manufacturer in Kampong Speu audited by a KICPAA-registered firm, applies CIFRS. On 1 November 2025 it delivered 6,000 cartons of a new product to Angkor Mart under a 20,000-carton annual contract priced at $9.50 per carton. Angkor Mart takes physical possession but may return unsold cartons within 120 days; Sokha sets the retail price, bears spoilage and obsolescence risk, and can redirect cartons to other customers. Angkor Mart pays 30 days after delivery. A 3% rebate applies if annual purchases exceed 25,000 cartons; Angkor Mart had already bought 18,000 cartons before this delivery and forecasts further purchases. Sokha's reliable history shows a 4% return rate on new products. At 31 December, none of the 6,000 cartons had been sold by Angkor Mart. Separately, a $180,000 receivable from an unrelated customer is 180 days overdue, unsecured, and the customer has stopped responding.
1. Apply the control indicators in CIFRS 15 to decide whether the 6,000 cartons should be recognised as revenue on 1 November 2025.
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Physical possession by Angkor Mart is not decisive. The arrangement has the hallmarks of a consignment: Sokha controls the price to the end customer, bears spoilage and obsolescence risk, and can redirect the cartons to other customers. Angkor Mart has no unconditional obligation to pay because it can return unsold cartons within 120 days, and it does not obtain the significant risks and rewards of ownership. The 30-day payment term is a credit term, not proof that control passed. Conclusion: no revenue on 1 November. Revenue should be recognised when Angkor Mart sells the cartons to an end customer, or when the return right lapses and control has clearly transferred. Until then, the cartons remain Sokha's inventory, with a corresponding adjustment to the receivable or a contract liability for any cash received.
2. Assume instead that control does transfer at delivery. Compute the transaction price and revenue for the 6,000 cartons, showing the treatment of the rebate and the right of return.
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List price is 6,000 × $9.50 = $57,000. The 3% rebate is variable consideration. Because Angkor Mart has already bought 18,000 cartons and forecasts further purchases, it is highly probable that annual purchases will exceed 25,000, so the rebate should not be constrained. Rebate = 3% × $57,000 = $1,710. The 4% expected return is also variable consideration; using the reliable historical rate, expected returns = 4% × $57,000 = $2,280. Transaction price = $57,000 − $1,710 − $2,280 = $53,010. Recognise revenue of $53,010, a refund liability of $2,280 for the right of return, and a rebate liability of $1,710. The receivable is $57,000 before the rebate is settled. Because the rebate threshold is annual, also consider whether the 18,000 earlier cartons require a cumulative catch-up; the same estimate should be applied consistently to the whole contract.
3. Assess the overdue receivable under CIFRS 9 and explain whether a provision matrix alone is sufficient.
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A provision matrix is a practical expedient for large homogeneous portfolios, but it cannot replace specific assessment when there is objective evidence of credit impairment. A $180,000 balance 180 days overdue, unsecured, with the customer unresponsive, is credit-impaired. Sokha should estimate lifetime expected credit losses using probability-weighted scenarios of recovery, including legal action and any salvage value, and discount to the reporting date. The loss allowance should reflect the specific facts, not merely the average matrix rate for the ageing bucket. If there is no reasonable expectation of recovery, the balance should be written off against the allowance. Any subsequent recoveries are recognised as income. Disclosure should explain the credit risk and the judgements used.