## Consignment Sales

### Concept

The manufacturer/principal sends goods to a dealer/agent (consignee) who sells them on the principal's behalf. Title to goods remains with the principal until the consignee sells to the end customer.

### Revenue Recognition Rule

The consignor (manufacturer/principal) recognises revenue only when the goods are sold by the consignee to the ultimate/final customer — not when goods are dispatched to the consignee.

```

Manufacturer → sends goods to Dealer (consignee) → Dealer sells to Customer

[No revenue here] [Revenue recognised HERE]

```

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## Interdivision (Inter-departmental) Sales

### Concept

Sales between divisions/departments of the same company (e.g., Division A sells raw material to Division B within the same legal entity).

### Revenue Recognition Rule

These are not real sales — they are internal transfers
No revenue is recognised for interdivision transactions
Only sales to external parties generate revenue

> Both consignment and interdivision rules reflect the same principle: revenue requires a genuine transfer of risks and rewards to an independent external party.

Worked example

### Example 1

A T-shirt manufacturer sends 500 T-shirts to a dealer on consignment. The dealer sells 300 T-shirts to customers by month end.

Revenue recognised by manufacturer = 300 T-shirts × price
The remaining 200 T-shirts are still the manufacturer's inventory (not sold yet — no revenue)

### Example 2

Division A of XYZ Ltd. manufactures components and 'sells' them to Division B of the same company for assembly.

This is an internal transfer.
No revenue is recognised by XYZ Ltd. for this transaction.
Revenue is recognised only when Division B sells the finished product to an external customer.

⚠️ Common exam mistakes

Booking revenue when goods are dispatched to the consignee — dispatch to consignee is NOT a sale.
Recognising interdivision transfers as revenue — only transfers to external parties generate revenue.
Confusing consignment with a normal sale — in consignment, the consignee is only an agent; title stays with the consignor.

Reference:

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AS 9 – Consignment Sales and Interdivision Sales

Worked example

⚠️ Common exam mistakes