Revenue Recognition on Ex-works

Hi Hariharan,

Here’s a detailed take on your queries regarding Revenue Recognition under Ex-Works (EXW) delivery terms and the concept of Bill & Hold under Ind AS (and generally IFRS principles):

1. Revenue Recognition under Ex-Works (EXW) terms

• Under Ind AS 115 (Revenue from Contracts with Customers), revenue is recognized when control of goods passes to the buyer.

• EXW terms mean the buyer takes delivery at the seller’s premises, and the buyer arranges transportation.

• Therefore, revenue recognition generally happens when the goods are made available at the seller’s premises and the buyer has the ability to take delivery.

• If the product is ready for dispatch, but the buyer delays taking delivery, the risk and control should have passed to the buyer under EXW terms, provided the seller has fulfilled its obligation of making goods available.

• Hence, revenue can be recognized when the product is ready for dispatch and the buyer is informed that goods are available.

2. What if buyer delays delivery beyond 6 months?

• The 6 months delivery timeline is a term in the Purchase Order, but under EXW, once the goods are ready, the seller has completed its performance obligation.

• The delay by buyer in taking delivery does not affect revenue recognition, provided the goods are available and ready for collection.

• However, the seller must ensure the goods are properly stored and accounted for; additional costs due to delay may need to be considered separately.

3. Is Bill & Hold appropriate in this scenario?

• Bill & Hold is a situation where the seller invoices the buyer but retains physical possession of the goods until the buyer requests delivery.

• Under Ind AS 115, Bill & Hold revenue recognition is allowed only when all criteria are met:

  • The buyer has requested the bill & hold arrangement.

  • The reason for bill & hold must be substantive (not just convenience of the buyer).

  • The goods are separately identified, ready for shipment, and cannot be used to fulfill other orders.

  • The seller cannot have the ability to use the goods or redirect them to another customer.

• In your case, if the buyer accepts the invoice but delays taking delivery only because the budget will expire, this might not qualify as a substantive reason.

• Revenue recognition under Bill & Hold must be supported by clear contractual terms and business justification.

Summary:

• Under EXW, revenue can be recognized when goods are ready for dispatch and made available to the buyer.

• Delay by buyer beyond 6 months does not defer revenue recognition if the seller fulfilled its obligations.

• Bill & Hold can be considered only if strict criteria are met; mere buyer convenience or budget reasons usually do not justify Bill & Hold revenue recognition.