Although INCOTERMS 2010 are clear cost-risk sharing between seller and buyer under CIF delivery term, there has been ambiguity when to recognize sales i.e. the date of loading to vessel at origin or date of arrival at the port of discharge?
In a clearer expression where the title of goods changes in case of CIF sales? When the goods are loaded on the vessel at departure –where risk belongs the buyer- or when goods arrive at destination port?
Indeed the issue is legal as well as financial. Now IFRS 15 shall be in effect from January 1st, 2018, I wonder if it will help to clarify when the title of goods passes from seller to the buyer in case of CIF delivery?
Because IFRS 15 covers revenue and profit recognition perhaps it will clarify this dim area as well.
Industry experts e.g. Thomas A. Cook long ago stated that "Title is not determined by the INCOTERM. It is determined by the sales contract, agreement or what you have in the commercial invoice. It should only pass on an export, once the contract has been satisfied ... meaning you have delivered and they have paid.
This needs to be expressly written into your contract of sale or on the commercial invoice.
In the INCOTERMS prologue, it specifically states ‘Although INCOTERMS are extremely important for the implementation of sale, a great number of problems which may occur in such a contract are not dealt with at all, like transfer of ownership and other property rights'.
( You may access the full paper at http://www.americanpetproducts.org/Uploads/MemServices/ARIWhitePaperIncoArticle.doc)
I will appreciate comments from finance and legal experts when revenue from CIF sales can be recognized in company records? Is it the time when goods are loaded on board of the ship at departure port or is it the date goods arrive the port of destination?