Revenue recognition in drop-shipping business as per IFRS

Question

How do you recognize revenue in drop-shipping? For instance say we find a buyer for a product and what we do is we find a manufacturer of such product and as manufacturer to directly send product to the buyer. We don't even see the product. Can we recognize only the sales margin as revenue or are we required to recognize the total amount payable by the buyer as revenue?

Answer 1

Whether you should recognize gross amount or *** amount as your revenue is discussed by FASB under EITF Issue No. 99-19; download here: http://***.fasb.org/resources/ccurl/839/596/abs99-19.pdf

Whether to recognize gross or *** revenue depends on the relevant facts and circumstances and that the factors or indicators set forth below should be considered:

Indicators of Gross Revenue Reporting
-The company is the primary obligor in the arrangement
-The company has general inventory risk
-The company has latitude in establishing price
-The company changes the product or performs part of the service
-The company has discretion in supplier selection
-The company is involved in the determination of product or service specifications
-The company has physical loss inventory risk
-The company has credit risk

Indicators of *** Revenue Reporting
-The supplier (not the company) is the primary obligor in the arrangement
-The amount the company earns is fixed
-The supplier (and not the company) has credit risk