Strategic Business Reporting (International) · Revenue

Principal vs Agent, Licences and Repurchase Arrangements in IFRS 15

Q: How do I decide if an entity is a principal or an agent under IFRS 15?

Identify the specified good or service the customer receives, then ask if your entity controls it before it transfers. Indicators include primary responsibility for fulfilment, inventory risk and discretion over price. Weigh them together against the facts.

Q: What is the difference between a right to access and a right to use a licence?

A right to access gives the customer the IP as it changes over the licence period, because the entity keeps doing activities that affect it. Revenue is over time. A right to use gives the IP as it is when granted, so revenue is at a point in time.

Q: When can a seller recognise revenue on a bill-and-hold sale?

Only when the customer has obtained control. The reason must be substantive, the goods must be identified as the customer's, they must be ready for transfer, and the seller must not be able to use them or direct them elsewhere.

Q: How are sale and repurchase agreements accounted for?

If the seller has a forward or call option, the customer has no control, so there is no sale. It is a lease if the repurchase price is lower than the selling price and a financing arrangement if it is equal or higher. Put options depend on whether the customer has a significant economic incentive to exercise.

Updated 11 October 2026 · Fact-checked

These are IFRS 15 application areas. A principal controls goods or services before transfer and reports revenue gross; an agent arranges the sale and reports only its fee or commission. Licences give revenue over time or at a point in time. Repurchase, consignment and bill-and-hold deals depend on whether the customer obtains control.

Understand Principal vs Agent, Licences and Repurchase Arrangements

IFRS 15 asks one question again and again: who has control, and when does it pass? The special topics here are just situations where the answer is not obvious from the legal form of the deal.

Principal vs agent. Before a good or service reaches the customer, ask if your entity controls it. A principal controls it and is responsible for providing it, so it reports revenue at the full price charged to the customer (gross). An agent only arranges for another party to provide it, so it reports revenue equal to its fee or commission (net). The standard gives indicators of control: primary responsibility for fulfilment, inventory risk, and discretion in setting the price. They are indicators, not a checklist. You must weigh them against the scenario.

Licences of intellectual property. First decide if the licence is distinct from other goods or services in the contract. If it is, classify it. A licence that gives a right to access the IP as it exists throughout the licence period is satisfied over time. This applies when the entity will keep undertaking activities that significantly affect the IP, the customer is exposed to the effects of those activities, and those activities do not transfer a separate good or service. Otherwise the licence is a right to use the IP as it exists when granted, and revenue is recognised at the point in time the customer can use and benefit from it. Sales-based or usage-based royalties from a licence of IP are recognised only when the later of two events occurs: the sale or usage happens, or the related performance obligation is satisfied.

Bill-and-hold and consignment. In a bill-and-hold arrangement, the customer is invoiced but the seller keeps physical possession. Revenue is recognised only if the customer has control. The standard requires all of these: the reason is substantive (for example the customer asked for it), the goods are identified separately as the customer's, they are ready for physical transfer, and the seller cannot use them or redirect them to another customer. In a consignment, goods are delivered to a dealer but the seller keeps control until the dealer sells them on or a specified event happens. Indicators include the seller being able to demand return or transfer the goods to a third party, and the dealer having no unconditional obligation to pay. So no revenue arises on delivery to the dealer.

Repurchase agreements. If an entity sells an asset and agrees to buy it back, ask what type of right exists. The IFRS 15 repurchase guidance covers three types: a forward, a call option and a put option. A forward (obligation) or a call option (right) means the customer has not obtained control. If the repurchase price is below the original selling price, treat it as a lease. If it is equal to or above the original price, treat it as a financing arrangement: keep the asset and recognise a liability. A put option (customer's right) is assessed by whether the customer has a significant economic incentive to exercise it. If it does, compare the repurchase price with the original selling price. It is a lease if the repurchase price is below the original price, and a financing arrangement if it is equal to or above it. To judge the incentive, the standard lets you consider the repurchase price against the expected market value of the asset. If the customer has no significant economic incentive, the arrangement is treated as a sale with a right of return.

A sale and leaseback is a different matter. It is not a repurchase agreement, because the seller keeps using the asset under a lease. It is dealt with under IFRS 16, which uses the IFRS 15 control requirements to test whether a sale has occurred.

Key rules to remember

Principal: gross revenue: Revenue = full price charged to the customer; cost of the goods or services = cost of sales; Use when the entity controls the good or service before it passes to the customer.
Agent: net revenue: Revenue = commission or fee = amount received from customer − amount paid to the supplier; Use when the entity only arranges for another party to provide the good or service.
Licence classification: Right to access → over time; right to use → point in time; Only if the licence is distinct. Otherwise combine it with other goods or services in the contract.
Sales-based royalty on IP licence: Recognise at the later of: (a) the subsequent sale or usage, and (b) satisfaction of the performance obligation; This applies to royalties promised in exchange for a licence of IP.
Bill-and-hold test: Substantive reason + identified separately + ready for transfer + cannot be used or redirected; All four must be met for the seller to recognise revenue before physical delivery.
Repurchase: forward or call option: Repurchase price < original price → lease; repurchase price ≥ original price → financing; No sale is recognised because the customer does not obtain control. A sale and leaseback is not a repurchase agreement; IFRS 16 deals with it.
Repurchase: put option: Significant economic incentive to exercise → lease if repurchase price < original price, financing if repurchase price ≥ original price; no significant incentive → sale with right of return; Compare the repurchase price with the expected market value at the date of repurchase to judge the incentive. Compare it with the original price to choose between lease and financing.

How to solve Principal vs Agent, Licences and Repurchase Arrangements questions

Use this approach for any scenario on these topics. Always anchor the answer in control.

1Identify the arrangement type: three parties, IP licence, goods held for the customer, goods with a dealer, or a sale with a buy-back.
2Identify the performance obligation. Ask what the customer is actually promised and whether it is distinct.
3For three-party deals, apply the control test to the specified good or service before transfer. Use the indicators: primary responsibility, inventory risk and pricing discretion.
4For licences, decide if it is distinct, then right to access (over time) or right to use (point in time). Check for royalties and apply the later-of rule.
5For bill-and-hold, consignment and repurchase, test whether the customer has obtained control. Quote the specific criteria or the option type.
6Do the numbers: gross or net revenue, timing of recognition, and any lease or financing accounting. Show the journal if asked.
7Conclude and state the effect on revenue, profit, assets and liabilities. Add judgement or ethics comments, such as pressure to inflate revenue.

Quickest way: Control-first triage

When to use it: Use when time is short and you need a defensible answer in a few lines per scenario.

Write one sentence: 'Revenue is recognised when/if the customer obtains control.'
Name the arrangement and the single test that decides it, such as the principal indicators, access vs use, the four bill-and-hold criteria or the option type.
Apply that test to two or three facts from the scenario and state the result.
State the accounting in numbers: gross or net, date of recognition, or liability instead of revenue.
Close with the impact on revenue and profit for the period.

Common mistakes in Principal vs Agent, Licences and Repurchase Arrangements

Deciding principal or agent by the legal label in the contract, such as 'agent' or 'distributor'.
Students trust the wording rather than the substance.
Fix: Apply the control test and the indicators to the facts. The label does not decide the answer.
Recognising the full sale proceeds as revenue for an agent and then showing the supplier's share as an expense.
Gross figures are easy to see in the question and students forget the agent's revenue is only its fee.
Fix: For an agent, revenue is the net commission. Do not gross up revenue and cost of sales.
Treating every licence as a point-in-time sale or every licence as over time.
Students memorise one outcome and skip the test.
Fix: Ask if the entity continues activities that significantly affect the IP and expose the customer to their effects. If yes, access (over time). If no, use (point in time).
Recognising revenue on goods delivered to a dealer under consignment.
Delivery looks like a sale, and the transfer of physical goods is confused with the transfer of control.
Fix: Check whether the dealer has an unconditional obligation to pay and whether the seller can recall the goods. If control stays with the seller, no revenue arises until the dealer sells to the end customer.
Treating a sale and repurchase at a higher price as a sale with a profit.
Students focus on the legal sale and ignore the buy-back commitment.
Fix: If the seller must or can buy back, the customer lacks control. Keep the asset and record a financing liability when the repurchase price is at least the original price. Recognise the difference as interest over the period.
Applying the repurchase rules to a sale and leaseback of an asset.
Both involve selling an asset and getting use of it back in some form.
Fix: A sale and leaseback is not a repurchase agreement, because the seller keeps the asset under a lease. It is dealt with under IFRS 16, which uses the IFRS 15 requirements to test whether a sale has occurred. The IFRS 15 repurchase guidance covers forwards, call options and put options.

Worked examples

Example 1

Travelo operates an online platform. It sells flight tickets on behalf of airlines. Travelo does not take on inventory risk, the airline is responsible for the flight and sets the ticket price, and Travelo earns a 6% commission. During the year, tickets with a price of $5,000,000 were sold through the platform. Calculate the revenue Travelo should recognise and explain.

Show the solution

Apply the control test: Travelo does not control the seat before it is transferred to the customer. The airline provides the flight, bears responsibility and sets the price.
The indicators (no primary responsibility, no inventory risk, no pricing discretion) point to Travelo acting as an agent.
As an agent, revenue is the commission only: 6% × $5,000,000 = $300,000.
The $4,700,000 passed to the airlines is not revenue or cost of sales for Travelo. It is an amount collected on behalf of others.

Answer: Travelo is an agent and recognises revenue of $300,000 (net commission), not $5,000,000.

Example 2

On 1 January 20X1, Medix sells a machine to Buro for $800,000. The carrying amount is $600,000. Medix has a call option to repurchase it on 31 December 20X2 for $882,000. Explain the accounting at 1 January 20X1 and compute the finance cost for 20X1. Assume the implicit rate is 5% a year and ignore the machine's depreciation.

Show the solution

Identify the arrangement: a sale with a call option held by Medix. Because Medix can repurchase the asset, Buro does not obtain control.
Compare the repurchase price with the original selling price: $882,000 is greater than $800,000, so this is a financing arrangement and not a lease.
On 1 January 20X1: Medix keeps the machine on its statement of financial position at $600,000 (and continues to depreciate it). It recognises the cash received: Dr Cash $800,000, Cr Financial liability $800,000. No revenue and no profit on disposal.
Finance cost for 20X1: 5% × $800,000 = $40,000. Dr Finance cost $40,000, Cr Financial liability $40,000. The liability becomes $840,000 at 31 December 20X1.
In 20X2 a further 5% × $840,000 = $42,000 accrues, giving $882,000. This equals the repurchase price, which is consistent with the 5% rate (800,000 × 1.05² = 882,000). Over the two years, the total finance cost is $82,000. When Medix pays $882,000 on 31 December 20X2, the liability is cleared.

Answer: No sale is recognised. Medix keeps the machine, records an $800,000 liability and accrues finance cost, which is $40,000 for 20X1 at the given 5%.

Exam tips

Always open with control. Examiners reward answers that link each conclusion to the transfer of control and to the facts given.
In principal versus agent questions, list each indicator, say which way it points, and then reach a clear conclusion. Mention that indicators are weighed, not counted.
For licences, note if the licence is distinct before classifying it. Many students skip this and lose marks.
Expect an ethics angle. Pressure to book revenue early or gross can inflate results. Comment on professional scepticism and the reporting effect, which also earns professional skills marks.
Show the effect on revenue, profit and the statement of financial position in numbers. A correct explanation with no figures often scores below a short explanation with correct figures.

Practice questions from Revenue

Principal vs Agent, Licences and Repurchase Arrangements in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Principal vs Agent, Licences and Repurchase Arrangements: frequently asked questions

How do I decide if an entity is a principal or an agent under IFRS 15?

Identify the specified good or service the customer receives, then ask if your entity controls it before it transfers. Indicators include primary responsibility for fulfilment, inventory risk and discretion over price. Weigh them together against the facts.

What is the difference between a right to access and a right to use a licence?

A right to access gives the customer the IP as it changes over the licence period, because the entity keeps doing activities that affect it. Revenue is over time. A right to use gives the IP as it is when granted, so revenue is at a point in time.

When can a seller recognise revenue on a bill-and-hold sale?

Only when the customer has obtained control. The reason must be substantive, the goods must be identified as the customer's, they must be ready for transfer, and the seller must not be able to use them or direct them elsewhere.

How are sale and repurchase agreements accounted for?

If the seller has a forward or call option, the customer has no control, so there is no sale. It is a lease if the repurchase price is lower than the selling price and a financing arrangement if it is equal or higher. Put options depend on whether the customer has a significant economic incentive to exercise.