Revenue recogniztion issue where deliveries to clients are unusually long due to logistical issues

Question

Dears
We are a manufacturing company  .We manufacture, & transport the goods to neighboring countries by road. We make sales orders & get the client to sign the sales orders before we manufacture
Recently due to traffic congestion, deliveries  to neighboring countries are  delayed & delivery takes 3 months, instead of the normal one week. The auditors are objecting to book the revenue due to non deliveries. However we said that we will incorporate a text in the sales orders , in line with the IFRS guide lines of revenue recognition. Can any member please suggest

Answer 1

The point here is whether your company transfers to the buyer the significant risks and
rewards of ownership of the goods just after the goods manufactured leave your warehouses as per IAS 18.14 (a). In other word you need to ascertain whether the goods in transit belong to you or to the buyer. In the current scenario, if you have undertaken to manufacture & deliver the goods then the goods will be yours until the delivery and you can not recognize revenue until the delivery is complete.

If you wish to recognize revenue on the dispatch of goods from your warehouse, you could incorporate some terms of sale similar to a FOB shipping point / origin arrangement, which transfers the ownership of goods to the buyer as and when the seller loads goods to the ship/truck.