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Bill and hold transactions in sugar industry


Background information:  •The Company X is the largest producer and seller of sugar in the Country with the largest silo storage capacity in the Country in its possession; •The Company X applies full IFRS; •    The national legislation does not cover bill and hold transactions;  •The Company X has signed contracts with Customer A and Customer B with delayed delivery;  •    Customer A financed the purchase of sugar from the borrowings obtained from the Company X’s related party (the Bank) given under market conditions; •The Company X agreed fixed delivery schedule with Customer A and delivery upon buyer’s request with Customer B; •    Sugar production campaign lasts from August to January and the Company must empty its silos by the beginning of the new campaign. •Both Customer A and Customer B have no adequate conditions for storing the sugar. Therefore, the separate contract for storage services was concluded;  •Title deeds were issued after signing the contracts by which the ownership was formally transferred to the Customers; •    The risks and rewards are transferred to the Customers upon the transfer of ownership; •The usual payment terms are agreed, i.e. payment in advance or/and upon the issuance of the invoice for sugar sold or/and with the credit period of 60 days; The usual credit period granted to the customers is 60 days but there are also customers which pay in advance;  
Therefore, the Company X fulfills the mail conditions of bill and hold transaction (Para 1 - Illustrative Examples to IAS 18).
However, the question is the following condition is fulfilled: “The item is on hand, identified, and ready for delivery to the buyer at the time the sale is recognized”.  What does this mean in the sugar or similar industry?  
Explanation: The sugar cannot be physically identified as belonging to the Customer A or B as the sold and held quantity in silo is less than the total capacity of the silo e.g. sold quantity 4,000t of the total capacity of 40,000 tones. The sugar is not hold in separate silos (separate silos for Customer A and separate for Customer B) and other customers in fact can buy this sugar.  This is a common practice in this type of industry for sugar not to lose quality due to packaging (the sugar loses quality if packed in paper bags). There is no reasonable risk of a Company selling to another customer and breaching the agreement because the agreed quantity per all concluded contracts, is available at any time for packaging and delivery.  Sugar sold to Customer A and Customer B was produced before the transaction was made. This sugar is stored in the silo unpacked, while in accordance with the sales contracts sugar should be packed in paper bags of 25 kg and 50 kg upon delivery. Sugar can be packed in bags in a relatively short-time considering that the packaging is done automatically. In addition, storage of sugar in paper bags is not recommended due the fact that the sugar may become solid which can significantly lower its quality. Therefore, it is not recommendable to pack the sugar in paper bags before the actual delivery. Packaging time frame is approximately 6-10 days for 10,000 tons (delivered by train and trucks).  
Should the revenue from bill and hold arrangements be recognized in standalone financial statements of the Company X and when?

asked Oct 11 in IFRS 15 - Revenue from Contracts with Customers by Maja

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