Repurchase agreement

Repurchase agreements in IFRS 15

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Repurchase agreements in IFRS 15

INTRO Repurchase agreements in IFRS 15 – An entity has executed a repurchase agreement if it sells an asset to a customer and promises, or has the option, to repurchase it. If the repurchase agreement meets the definition of a financial instrument, then it is outside the scope of IFRS 15. If not, then the repurchase agreement is in the scope of IFRS 15 and the accounting for it depends on its type – e.g. a forward, call option, or put option – and on the repurchase price.

A forward or a call option

If an entity has an obligation (a forward) or a right (a call option) to repurchase an asset, then a customer does not have control of the asset. This is because the customer is limited in its ability to direct the use of, and obtain the benefits from, the asset despite its physical possession. If the entity expects to repurchase the asset for less than its original sales price, then it accounts for the entire agreement as a lease. [IFRS 15.B66–B67]

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IFRS 15 Vehicle sales by OEMs (Original Equipment Manufacturers) – BEST QUICK READ

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IFRS 15 Vehicle sales by OEMs IFRS 15 Vehicle sales by OEMs (Original Equipment Manufacturers) shows examples of real life situations, in this case close at home, selling cars and when is it really sold as per IFRS 15. An OEM typically sells the cars and trucks that it produces to a dealer that then sells the vehicles to consumers. Under IFRS 15, an OEM recognizes revenue for the sale of a vehicle when it transfers control of the vehicle to its customer (i.e., the dealer). Control of the vehicle transfers to the dealer when the dealer has the ability to direct the use and obtain substantially all the remaining benefits of the vehicle. OEMs need to consider whether they … Read more