Repurchase Agreements Ifrs

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] Balance sheet (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 accounting approach is as follows: the entity should recognise a financial liability and, in accordance with paragraph B68 IFRS 15, the difference between the initial sale price and the repo price should be recognised as a funding rate. 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 for which the company had the possibility or the obligation to buy back the asset, in this third contract, the company is obliged to buy back the asset at the request of the customer. On the other hand, if the redemption price is higher than the initial sale price, the entity must account for that transaction as a financing contract. In the first contract with customer 1, a machine is sold for 3,500,000, with the right or obligation to buy back the asset for 2,900,000, the maximum exercise period of the repurchase option is one year from January 2018. At that meeting, IFRIC considered whether the conditions for approach to sale set out in paragraph 14 of IAS 18 had to be met before a transaction was recognised as a sale and lease transaction under IAS 17. In particular, IFRIC considered whether transactions should be recognised as such in the form of a sale and lease transaction if the seller/lessee retains effective control of the leased object through a repo or option. Typically, a repurchase agreement is a contract in which an entity sells an asset and promises or has the option to redeem the asset (either in the same contract or in another contract). Going back to the examples above, we find in the first contract that the redemption price is lower than the initial sale price. To understand pension transactions in a clear way, let us consider the following diagram As part of the evolution of its interpretation of service concession agreements, IFRIC has provisionally concluded that a transaction in the form of a sale and lease should not be accounted for as such if it involved a retirement transaction. This is due to the fact that the seller/lessee retained control of the asset due to the retirement activity.

Consequently, the criteria relating to the need to charge a sale in paragraph 14 of IAS 18 revenue from turnover would not be met. IFRS 15 provides that if the redemption price is higher than the original sale price, the customer is incentivized, but if the repurchase price is lower than the original sale price, there is no incentive for the customer. On the basis of IFRS 15, the repo transaction should be considered as a financing agreement that does not yield income. An entity should recognize the repurchase as a lease in accordance with IFRS 16, as the entity cannot recognize the revenues on the disposal, as it still has control of the asset. Paragraph 66 provides that the client does not have control of the asset in repo transactions and must therefore continue to record the asset in its financial statements, although the asset is used by a third party, given that the client has limited the ability to use the asset since it is a repo transaction. . . .

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