A depot dispatch does not establish a sale
Ind AS 115 B77 requires a supplier delivering products to a dealer or distributor for onward sale to assess whether the dealer has obtained control. Do not recognise product revenue on delivery if the product is held on consignment. Apply the control principle to the specific contract, not the logistics label or whether a commercial invoice was raised.
Read the applicable text: MCA Ind AS 115, paragraphs 31–38 and B77–B78.
Test the rights behind the dispatch
Under B78, indicators include control retained until a specified event, a right to require return or redirect the product, and no unconditional obligation for the dealer to pay for the product. The dealer may still be required to pay a deposit. The indicators are not exhaustive. Review commercial terms, remedies, actual stock transfers and whether any obligation to pay depends on sell-through. Compare an outright wholesale sale separately, even where both models use the same dealer.
Identify the event that actually transfers control
Where dealer sell-through is the supported trigger, validate dated point-of-sale or customer delivery evidence and account for legitimate reversals. An inventory report sent after year-end can evidence earlier transactions but its arrival date is not the sale date. An expiry date is relevant only if the contract and facts make it a transfer event; do not automatically recognise all ageing stock as revenue.
Reconcile inventory at a third-party location
Bridge opening units plus dispatches less verified sales, returns to the supplier, transfers and separately investigated variances. Stock returned from a dealer may still be company-owned inventory, merely relocated. Keep dealer-held goods in the supplier’s inventory while it retains control. For inventory subject to the general Ind AS 2 rules, measure it at the lower of cost and net realisable value and expense the carrying amount when the related revenue is recognised. Assess write-downs and losses separately under Ind AS 2.
Keep money, revenue and tax records separate
Reconcile dealer deposits and remittances to the contract and actual sales. A deposit alone does not establish an unconditional product purchase or revenue. Assess any commission and principal-agent presentation separately, applying Ind AS 115 paragraphs B34–B38 where relevant. Determine GST treatment under its own statute; an accounting consignment conclusion does not decide invoice or tax obligations.
Six worked illustrations
All facts and amounts are fictional. Calculations illustrate the stated assumptions, not a predetermined legal outcome.
Illustrative example 1: Dispatch with no sell-through
One hundred units costing ₹600 each are dispatched to a consignee; control is retained and none is sold. Product revenue is zero and dealer-held company inventory is ₹60,000 before any separate measurement adjustment.
Illustrative example 2: Partial sell-through
Of 120 units delivered, 45 transfer to customers at an assumed ₹1,000 per unit. Unit cost is ₹650. On the stated facts revenue is ₹45,000, cost of sales ₹29,250 and dealer stock 75 units with cost ₹48,750.
Illustrative example 3: Return to the supplier's depot
A dealer starts with 70 units and returns 18, with no sale. Dealer stock falls to 52 units. At ₹400 per unit, ₹7,200 of cost moves to the supplier's depot without generating product revenue.
Illustrative example 4: Deposit without a purchase obligation
A dealer places a ₹30,000 refundable deposit against stock valued at ₹1.2 lakh. The deposit equals 25% of that reference value but produces no product revenue before control transfers.
Illustrative example 5: Late sales report and cut-off
A report received after year-end lists 20 supported pre-close sales and 8 after close at ₹750 per unit. On the assumed trigger, current-period revenue is ₹15,000 and ₹6,000 belongs to the next period.
Illustrative example 6: Physical variance
Opening stock is 50 units, dispatches 40, verified sales 31 and returns 9. Expected dealer stock is 50; a count of 47 leaves a three-unit difference. At ₹500 cost per unit, investigate ₹1,500 before classifying the variance.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Identify dealer arrangements | Contract and programme master |
| 2 | Read control and payment terms | Rights, payment obligations and deposit clauses |
| 3 | Separate outright dealer purchases | Classification memo by channel or SKU |
| 4 | Record all dispatches | Warehouse and transport records |
| 5 | Confirm dealer-held stock | Dealer statement and physical confirmations |
| 6 | Verify control transfer dates | Sell-through or other supported event evidence |
| 7 | Reconcile returned stock | Return records and location transfers |
| 8 | Explain unexplained variances | Count evidence and investigation |
| 9 | Reconcile cash and deposits | Receipt and settlement ledger |
| 10 | Review cut-off and inventory | Period bridge and accounting sign-off |
Sixteen practitioner FAQs
1. Is delivery to a dealer always revenue?
No. Assess when control transfers.
2. Does the contract's name decide the outcome?
Review substantive rights and actual operation.
3. Can an arrangement require a deposit and still be consignment?
Yes. B78 distinguishes a deposit from an unconditional obligation to pay for the product.
4. What does a supplier return right indicate?
It can evidence retained control under B78.
5. Does unrestricted dealer use change the assessment?
Evaluate whether the rights support dealer control.
6. Must sell-through always be the trigger?
Use the supported control event for the actual arrangement.
7. What if the contract mentions expiry?
Establish whether expiry actually changes control.
8. What if a sales report arrives late?
Trace the underlying transaction date and evidence.
9. How are unverified units treated?
Investigate separately; do not assume a sale.
10. Does a return to the depot remove inventory from the entity?
It may change only location if the entity already controlled it.
11. Should dealer stock be confirmed at close?
Use confirmation, counts or appropriate alternative evidence.
12. Is cash receipt proof of a sale?
It may be a deposit or settlement; verify the underlying event.
13. Can one dealer have wholesale and consignment stocks?
Yes. Separate the contracts and identify the units.
14. Should commission be netted automatically?
Assess the separate presentation and settlement facts.
15. Does accounting decide GST Schedule I treatment?
No. Apply GST law independently.
16. What makes the working reproducible?
A unit and value roll-forward linked to dated control-transfer evidence.