Entity X distributes entity Y’s products under a distribution agreement. The terms and conditions of the contract are such that entity X: 

Entity Y retains product liability. Entity Y is, therefore, responsible for manufacturing defects. Also, the credit risk rests with entity Y. 

(a) Should entity Y recognise revenue on the transfer of the goods to entity X?

(b) What revenue should entity X recognise?

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Obtains title to the goods and sells them to third-party retailers. Stores, repackages, transport and invoices the goods sold to third-party retailers. Earns a fixed margin on the products sold to the retailers, but has no flexib- ility in establishing the sales price. Has the right to return the goods to entity Y without penalty. Is responsible for the goods while the goods are stored in entity X's ware- house, but entity Y bears the risk of obsolete goods.