In the borrower`s accounts, the bonds are recognised as an asset and the cash received from the lender is recorded as a “repo loan”. Financial assets: When the financial asset (borrowing) is sold as part of a repo transaction, it cannot be recognised in the accounts, as the transferor essentially retains all the risks and opportunities of the property. •the obligation for an entity to repurchase the asset (futures contract – see point 3.7.2); As noted earlier, these implementation examples accompany, but are not part of, IAS 18. However, they are useful for application and deserve to be reviewed. They believe that the level of revenue and related costs can be reliably measured and that the economic benefits are likely to be paid to the seller. Most examples are relatively self-explainable. We will look at two of the most complex examples: for example, sale and retirement operations (15) If goods are “sold” under conditions that either force the seller to buy them back in the future or contain buyback options that are likely to be exercised, the content of the transaction is often that the “sale” is in fact a financial provision. Assuming company A was “sold” on January 1, 2013 for $400,000 to company B. Goods are stocks that must mature five years before they are ready to be sold. Their market value on January 1, 2013 was $US 800,000 and Company A has the option to buy the goods back from Company B for $600,000 on January 1, 2018. The market value of the products is expected to increase by 5% per year between 2013 and 2017 inclusive.
Company A`s credit quality is such that it should pay interest of 8.447% per year on loans. The goods should remain on the premises of Company A for the entire five-year period from 1 January 2013 and Unit A is responsible for their safe storage. The factual model in this example shows that at least two of the conditions for recording income from the sale of goods are not met: Forums › Request ACCA Tutor Forums › Ask the tutor ACCA SBR Exams › Buyback contracts Processing call option according to the BPP study text: A financing agreement should be taken into account. The entity shall continue to record the assets and cash received as a financial liability. The difference between the initial sale price and the repo price is recognised as interest charges. Question 1a: Could you explain why the following transaction is not considered a retirement transaction? While I was trying this question, I looked at the text of the BPP study on the treatment of buy-back contracts. Using the treatment offered by BPP, I had classified this transaction as a call option, as the redemption price ($16.48 million) is > as the initial sale price ($16 million). My entries were: Dr. Land 12 million Dr. P/L $4 million Dr. Finance costs $0.48 million in loans cr – repo $16.48 million.
A repurchase agreement is a contract in which an entity sells and promises an asset or has the option (either in the same contract or in another contract) to redeem the asset. The repurchased asset may be the asset originally sold to the client, an asset substantially identical to that asset, or another asset of which the asset originally sold is a part. [IFRS 15:B64] On the basis of IFRS 15, the repo transaction should be considered as a financing agreement that does not yield income. . . .