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In kaplan exam kit question num “34 Tyre”.
Senario Tyre has given Hub a buy back option which entitles hub to require Tyre to repurchase the vehicle after 3yrs for 40% of its purchase price.The normal economic life is five years and the buyback option is expected to be exercised.
In solution first it talks about the IAS 17 and state the accounting treatment of operating lease.Then it says the buybackoption probably meet the defination of IAS 39 financial instrument ,The liabilty should be measured at fairvalue and subsequently recognised as amortised cost.
Is it right to give two different solution .It s quiet confusing.Unfortunately, not everything in this life is clear-cut black or white. I was teaching auditing today and we were talking about the affect on the audit report if the client was suffering from going concern indicators. We came across a range of possible effects from adverse opinion to emphasis of matter.
In your question, both alternatives could be justified so you should mention both for a “full” answer. Having said that, I would be amazed if 5% of students identified both possibilities
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