An Original Equipment Manufacturer (OEM) typically sells the cars and trucks that it produces to a dealer that then sells the vehicles to consumers. Under IFRS 15, an OEM recognizes revenue for the sale of a vehicle when it transfers control of the vehicle to its customer (i.e., the dealer). Control of the vehicle transfers to the dealer when the dealer has the ability to direct the use and obtain substantially all the remaining benefits of the vehicle. IFRS 15 Vehicle sales by Original Equipment Manufacturers
OEMs need to consider whether they have transferred control of a vehicle to the dealer upon shipment or delivery. The transfer of title, as dictated by the shipping terms, is only one indicator for determining the point in time when control transfers. OEMs also need to consider when they have the right to payment from the customer, when they have transferred the significant risks and rewards of ownership to the customer and the timing of customer acceptance of the vehicle, among other indicators. IFRS 15 Vehicle sales by Original Equipment Manufacturers
In addition, an OEM needs to consider whether it has an agreement to repurchase the vehicle or provide a resale value guarantee, which could mean that a transaction should be accounted for as a lease, a sale with a right of return or a financing arrangement. Refer to the section on repurchase agreements and residual value guarantees for further discussion.
OEMs may also have affiliate (captive) finance companies that purchase vehicles from dealers and lease the vehicles to retail customers in separate transactions. These repurchases typically do not result from an option that exists in the contract between the OEM and the dealer. Under IFRS 15’s control model, OEMs need to assess whether the possibility that vehicles will be repurchased by their captive finance companies precludes them from recognizing revenue when they ship or deliver the vehicles to dealers. IFRS 15 Vehicle sales by Original Equipment Manufacturers