Question

For the customer to have obtained control of a product in a bill-and-hold arrangement, all of the following criteria should be met?

1) The product must be identified separately as belonging to the customer
2) The product must be ready for physical transfer to the customer
3) The customer must have the ability to direct the use of the product
4) The arrangement must include a fixed schedule for delivery of the product

Answer 1

For a customer to have obtained control of a product in a bill-and-hold arrangement, the criteria that should be met include: 1) identification of the product as belonging to the customer; 2) readiness of the product for physical transfer to the customer; and 3) the customer having the ability to direct the use of the product. Thus the corrcet options are 1, 2 and 3.

Step-by-step explanation:

Identification of the Product:

In a bill-and-hold arrangement, the product must be specifically earmarked or identified as belonging to the customer. This identification is crucial to distinguish the product from the seller's inventory and confirm the customer's rights over it.

Readiness for Physical Transfer:

Although the product might not have been physically transferred, it should be ready and available for transfer at the customer's request or instruction. This ensures that the product is prepared and set aside for the customer, awaiting their directive.

Customer's Ability to Direct Use:

Control of the product involves more than physical possession. The customer must have the authority to direct the use of the product, such as instructing the seller on how or when to deliver the product, indicating the purpose of the product, or having the discretion to decide when the product will be shipped.

In a bill-and-hold arrangement, meeting these criteria is essential to establish that the customer has obtained control of the product, even if physical transfer has not yet occurred. These criteria help determine when revenue can be recognized, aligning with the principle of revenue recognition under accounting standards.

Therefore, the corrcet options are 1, 2 and 3.

Complete Question

For the customer to have obtained control of a product in a bill-and-hold arrangement, which of the following criteria should be met?

1) The product must be identified separately as belonging to the customer

2) The product must be ready for physical transfer to the customer

3) The customer must have the ability to direct the use of the product

4) The arrangement must include a fixed schedule for delivery of the product