Help with IAS2

dollydaydream Registered Posts: 3 New contributor 🐸
I am in charge of the stocktakes in a very large public body. My boss says that now we are switching to IAS we also have to count our consignment stock. I am quite confused about this. How can we count stock that we don't have title to? Am I missing something? Do we have to note the value of our consignment stocks in notes to the accouts? :001_unsure:

This is really giving me a very large headache. Any advice you could give would be very much appreciated


  • dollydaydream
    dollydaydream Registered Posts: 3 New contributor 🐸
    I'm bumping this up as it's about to drop off the page and I need some help....please????????
  • peugeot
    peugeot Registered Posts: 624
    The provisions of IAS 2 do not specifically cover 'consignment stock'. In UK GAAP, Application Note A to FRS 5 specifically covers this, but in IFRS you have to go back to the provisions in IAS 1 and refer your boss to the definition of an 'asset' and what gives rise to an asset (i.e. a resource which is 'controlled' by the entity).

    The consignor (your supplier) will include the consignment inventory in their inventories, you will exclude them because you can only recognise them as inventory when title (and ownership) passes to your company.

    In terms of disclosure, the IFRS does not lay down specifics for disclosure but you may choose to because ratios such as stock turnover days may be distorted unless the financial statements disclose the consignment inventory.

  • dollydaydream
    dollydaydream Registered Posts: 3 New contributor 🐸

    My boss told me more today.

    He said that although it's not an asset, we carry the risk and reward so it has to be disclosed in a note to the accounts. Upshot is, I still have to get someone to count it!

    Does this sound reasonable?
  • peugeot
    peugeot Registered Posts: 624
    I think you need to look in more detail about this and you need to look at IAS 1 and the IASB's Framework Document about reporting the 'substance' of transactions.

    If the consignor has transferred all the risks and rewards of ownership of the consignment stock to your company, then in substance you have an asset regardless of whether legal title has passed or not and this asset should be recognised on the balance sheet.

    You need to determine who suffers the risks of issues such as:

    the risk of technical obsolescence - can you return obsolete stock;
    can the consignor demand return of the goods;
    you bear the risk of slow movement; or
    do you suffer a penalty if you return any goods.

    Those are some of the indicators in AN A FRS 5 that stock is an asset of the dealer (consignee).

    I think you need to determine exactly what 'risks and rewards' your boss is referring to and then see if (in commercial reality i.e. 'in substance') you have an asset that needs to be recognised.
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