Consignment stock: reconcile custody, control and sell-through
Goods at a dealer are not necessarily goods sold to that dealer. A consignment arrangement can leave the supplier controlling inventory after physical shipment. Reconstruct the control event and the quantity movement together, so that neither a warehouse photograph nor an invoice becomes a shortcut to revenue.
The worksheet here concerns consignment release, rather than a general channel-demand forecast. Customer sell-through can be evidence of the release event, but only after the contract establishes why that event matters. The location of the remaining stock must stay visible.
Establish the arrangement and period
Assume an Australian for-profit supplier reporting for a year beginning January 1, 2024. The December 2022 AASB 15 compilation states an applicability window for periods beginning from January 1, 2023 before July 1, 2026. Its IFRS-aligned guidance B77–B78 is the specific reference for this historical teaching example, not a claim about all 2026 reporters.
Look for the supplier’s continuing control, ability to require return or redirect stock, and the dealer’s payment obligation. A deposit does not by itself establish an unconditional purchase. The source’s indicators support the assessment; they are not a mechanical scoring system in which two checked boxes guarantee an answer.
Read the revenue policy alongside the distribution agreement if available. Distinguish an issuer’s own statement that stock is consigned from independently visible terms. Public reports often summarize the arrangement without supplying each dealer contract.
Main example: three destinations for one shipment
Fictional supplier Willow sends a dealer one hundred identical units. Cost is four per unit and the assumed sales consideration attributable to Willow is seven per unit. The dealer sells sixty to final customers, returns ten to Willow’s warehouse and still holds thirty. Assume control passes for the sixty customer sales only.
Ignore dealer commissions, taxes, damaged goods and other arrangements to isolate the quantity-and-control bridge. Those exclusions matter: an actual retail ticket price is not automatically the supplier’s revenue.
| Destination after shipment | Units | Willow revenue | Cost released | Inventory still controlled |
|---|---|---|---|---|
| Sold to final customers | 60 | 420 | 240 | 0 |
| Returned to Willow | 10 | 0 | 0 | 40 |
| Still held by dealer | 30 | 0 | 0 | 120 |
| Total | 100 | 420 | 240 | 160 |
The supplier-controlled closing inventory is 160, comprising forty physically back at Willow and 120 at the dealer. Calling all 160 “dealer consignment stock” would misstate location. Calling the dealer’s thirty units the supplier’s entire remaining inventory would omit the returned ten.
The independent cost check is initial inventory of four hundred minus cost released of 240 equals 160. The quantity check is one hundred minus sixty equals forty still controlled, split between ten returned and thirty at the dealer. Neither check identifies where a missing unit went without supporting movement evidence.
Reconcile records before accepting the release
Use the opening dealer stock, new consignments, customer sales, supplier returns, transfers to other dealers and closing dealer stock. Each movement needs a date and a distinct event identifier. A supplier-to-dealer transfer is not another final sale merely because it generates a second shipping document.
Suppose the dealer’s monthly statement reports sixty sales but remits payment for only fifty-five. Investigate settlement timing, fees, disputes and customer returns. The five-unit difference does not automatically reverse five sales, and it does not prove collection will occur. Revenue release and receivable collectability are separate questions.
Likewise, a return authorization for ten units is not proof they arrived at Willow. Before receipt, location and custody may remain in transit or at the dealer. The main table assumes completed return; preserve a pending category if that evidence is absent.
A different boundary: an actual dealer purchase
Change the contract rather than the unit count. Assume the dealer has acquired control, cannot return the goods except for ordinary defects, owes an unconditional price and can sell at its own risk. Goods still on its shelves may now be the dealer’s inventory rather than the supplier’s consignment.
Under those changed facts, final customer sales are not automatically the supplier’s recognition trigger. The conclusion still needs the broader control assessment. Weak downstream demand may create a commercial concern without proving that the original supplier revenue should have been deferred.
Contrast bill-and-hold arrangements as well. In a qualifying bill-and-hold case, goods can remain physically with the seller while control has transferred. Consignment can produce the opposite pattern: goods have left the seller while control remains. Location is therefore an input, not the decision rule.
Use a lot-level evidence table
| Input | Research action | Evidence limitation |
|---|---|---|
| Control and redirection rights | Locate operative clause and amendments | Summary language may omit conditions |
| Dealer payment obligation | Separate deposit from unconditional price | Cash received alone is insufficient |
| Unit or lot identity | Match shipment, sale and return references | Product names can combine different lots |
| Customer-release event | Match dates and eligible units | Dealer reports are not independent audits |
| Remaining location | Split dealer, transit and supplier warehouse | Return approval is not receipt |
| Cost and consideration | Verify consistent unit economics | Retail price may include other parties’ fees |
An outside researcher can often obtain the accounting policy, dealer-stock disclosure and subsequent inventory movements. Serial-number records, customer receipts and detailed dealer settlements commonly remain private. Report the aggregate reconciliation available publicly, then identify precisely which missing record prevents a firmer conclusion.
Do not assign all unexplained units to fictitious sales or to valid inventory. Preserve the difference and test alternative causes, including cutoff errors, duplicate statements and physical loss. A balanced table can still contain unreliable inputs.
Update the conclusion when control evidence changes
Review again after new return rights, dealer insolvency, stock redirection, a shift to unconditional payment or unusually large year-end shipments. If a dealer closes, ask who can retrieve the goods and whether inventory remains recoverable. The legal and valuation consequences require more evidence than the physical quantity alone.
For Willow, a later verified sale of the remaining thirty dealer units would release their cost of 120 under the original assumptions. It would not release the forty of returned stock still in Willow’s warehouse. Keep the cohort open until each location reaches a supported disposition.
The final note should state revenue released, inventory controlled and inventory location separately. That three-part result prevents shipment growth from silently becoming sales growth while retaining what the records actually establish.
Keep returned goods in a separate warehouse record after they leave the dealer ledger. Otherwise a correct dealer closing balance of thirty can coexist with an incorrect group inventory total. When the next report arrives, carry forward thirty dealer units and ten warehouse units separately; do not restart from forty units under one location label.
FAQ
Does a dealer deposit prove a purchase occurred?
No. Read control, return rights and whether payment is unconditional. A deposit can exist in a consignment arrangement.
Are returned goods automatically an expense?
No. In this example they remain inventory, subject to separate condition and valuation checks.