According to OMFP 1802/2014, assessing when an entity has transferred significant risks and rewards of ownership to the buyer requires an examination of the circumstances in which the transaction took place. In most cases, the transfer of risks and rewards of ownership coincides with the transfer of legal title or the transfer of the assets to the buyer.
In other cases, the transfer of risks and rewards of ownership occurs at a different time from the transfer of legal title or the passing of the goods into the possession of the buyer. If an entity retains only an insignificant risk of ownership, then the transaction is a sale and revenue is recognised. For example, a seller may retain title to goods only to ensure that it will collect the amount due. In such a case, if the entity has transferred the significant risks and rewards of ownership, the transaction is a sale and revenue is recognised.
Another example where the entity retains only an insignificant ownership risk might be a retail sale with a money-back clause if the customer is not satisfied. In such cases, revenue is recognised at the time of sale, assuming the seller can reliably estimate future returns and can recognise a provision for returns based on past experience and other relevant factors.
For goods delivered under a consignment contract, delivery of goods from the consignor to the consignee is deemed to occur on the date the goods are delivered by the consignee to its customers.
For goods delivered for testing or conformity checking, the transfer of ownership of the goods shall be deemed to have taken place on the date of acceptance of the goods by the consignee. Goods transmitted for verification of conformity are goods offered by the supplier to the customer, who has the right either to purchase them or to return them to the supplier.
For stock at the customer’s disposal, the transfer of ownership of the goods is deemed to take place on the date on which the customer takes possession of the goods.