Page 166 - FR Integrated Workbook 2018-19

Chapter 12

1.6.4 Principal and agent

If an entity is an agent, then revenue is recognised based on the fee or commission
to which it is entitled.

Illustration 6

Rosemary Co's revenue includes $2 million for goods it sold acting as an
agent for Elaine. Rosemary Co earned a commission of 20% on these sales
and remitted the difference of $1.6 million (included in cost of sales) to Elaine.

How should the agency sale be treated in Rosemary's statement of profit
or loss?

Solution

Rosemary Co should not have included $2 million in its revenue, as it is acting
as the agent and not the principal in this contract. Only the commission
element of $400,000 ($2 million × 20%) can be recorded in revenue. The
following adjustment is therefore required:

$

Dr Revenue 1,600,000

Cr Cost of sales 1,600,000

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