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Sales and Repurchase agreement

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Sales and Repurchase agreement

  • This topic has 1 reply, 2 voices, and was last updated 7 years ago by MikeLittle.
Viewing 2 posts - 1 through 2 (of 2 total)
  • Author
    Posts
  • November 24, 2017 at 2:40 am #417712
    hoangquy
    Member
    • Topics: 2
    • Replies: 2
    • ☆

    Dear Mike,

    An entity enters a contract with the customer for the sale of a tangible asset at 1/1/2017 for 1$m with one of two cases below:

    Case 1: The contract includes a call option that gives the entity the right to repurchase the asset for 1.1$m on or before 31/12/2017.

    Case 2: The contract includes a put option that obligates the entity to repurchase the asset at the customer’s request for $900,000 on or before 31/12/2017 at which time the market value is expected to be $750,000.

    Can you tell me the accounting entry at 1/1/2017 and at 31/12/2017 if the option exercised or un-exercised?

    Thanks for your time!

    November 24, 2017 at 7:13 am #417731
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23315
    • ☆☆☆☆☆

    Case 1 looks like a secured loan and the asset isn’t really sold

    Dr Cash $1 million
    Cr Loan $1 million

    Case 2 looks to be a contrived hypothetical situation that is never likely to happen

    I’m not even sure that a put OPTION would create an OBLIGATION – surely a put option would create a contingent liability rather than an obligation

    That being so, I would record the sale:

    Dr Cash $1 million
    Cr TNCA Disposal Account $1 million

    and account for the profit or loss on disposal in the normal way

    OK?

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    Posts
Viewing 2 posts - 1 through 2 (of 2 total)
  • The topic ‘Sales and Repurchase agreement’ is closed to new replies.

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