Repurchase Agreements Ifrs 15

On the basis of IFRS 15, the repurchase transaction should be treated as a financing agreement that does not generate revenue. In accordance with paragraph B70 IFRS 15, an entity is required to repurchase the asset at the customer`s request (a put option) at a price below the initial selling price of the asset, the entity verifies, at the beginning of the contract, whether the customer has a significant economic incentive to exercise that right. Going back to the examples above, we find in the first contract that the purchase price is lower than the original selling price. On December 31, 2018, the company chooses to exercise the buyback option, which is why the entity must detract from liability and record a rental result for the difference between the initial selling price and the purchase price, in this case 600. Finally, the repurchase price in the contract with the last customer is less than the original selling price and the market price is higher than the original selling price, so that this type of transaction must be recognized as a preferential sale. On the other hand, if the repurchase price is higher than the original selling price, the entity must take this transaction into account as a financing agreement. IFRS 15 states that if the purchase price is higher than the original selling price, the customer is incentivized, but if the purchase price is lower than the original selling price, there is no incentive for the customer. In the borrower`s books, the bonds are recorded as assets and the money received by the lender would be recorded under the liabilities as a “buy-back loan.” In the first contract with Customer 1, a machine is sold for 3,500,000 with the right or obligation to repurchase the asset for 2,900,000, the maximum duration for the exercise of the buyback option is one year from January 2018. The accounting approach is as follows, the entity must recognize a financial liability and, in accordance with paragraph B68 IFRS 15, the difference between the initial selling price and the purchase price must be accounted for as financial interest. As a general rule, a pension contract is a contract by which an entity sells and promises an asset or has the possibility (either in the same contract or in another contract) to buy back the asset. A pension contract is a contract by which an entity sells and promises an asset or has the possibility (either in the same contract or in another contract) to buy back the asset. The asset repurchased may be the asset initially sold to the debtor, an asset essentially identical to the asset or other asset whose assets originally sold is an item.

[IFRS 15:B64] Balance Sheet (financial assets): if the property (borrowing) is sold under a pension contract, it cannot be dethroned from the accounts, as the assignor retains essentially all the risks and income of the property. As of December 31, the customer chooses not to exercise the buyback option because the repurchase value is less than the market price, the customer sees no incentive to compel the business to exercise the buyback option, which means that this option is not exercised and that the company must recognize the revenues from the sale of the asset. The entity must take into account the repurchase as a lease under IFRS 16, if the sale is made, the entity cannot account for the revenues, as the entity still has control over the assets. The second contract has the same characteristics as Contract 1, except that the repurchase price is 3,700,000. And in the third contract, we have that the repurchase price is 2,900,000 and a fair value of 4,000,000, unlike previous contracts where the company had the possibility or obligation to buy back the asset, in this third contract, the entity is obliged to repurchase the assets at the request of the customer.

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