To easily understand retirement operations, let`s look at the following diagram Back to the examples above, we find in the first contract that the redemption price is lower than the initial sale price. 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. Repo transactions are generally in three forms: a B70 put option Where an entity is required to repurchase the asset at the request of the client (a put option) at a price lower than the initial sale price of the asset, the entity must verify at the beginning of the contract whether the client has a significant economic incentive to exercise this right. The exercise of this right by the customer leads the customer to effectively pay the company consideration for the right to use a given asset for a given period. Therefore, if the customer has a significant economic incentive to exercise this right, the entity must recognise the agreement as a lease in accordance with IAS 17. In the borrower`s accounts, the bonds are recognised as an asset and the cash received from the lender is recognised as a liability as a “repo loan”. The second contract has the same characteristics as contract 1, except that the redemption price is 3,700,000. As of December 31, the client decides not to exercise the buyback option, given that the surrender value is below the market price, that the customer sees no incentive to compel the company to exercise the buy-back option, which is why the buy-back option is not exercised and the entity must recognise the income from the sale of the asset. •the obligation for an entity to repurchase the asset (futures contract – see point 3.7.2); 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). 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.
Pursuant to paragraph B70 IFRS 15 , where an entity is required to repurchase the asset at the request of the customer (a put option) at a price lower than the initial sale price of the asset, the entity must verify at the beginning of the contract whether the customer has a significant economic incentive to exercise that right. If the repo transaction is a financing agreement, the entity shall continue to recognise the asset and recognise a financial liability for the consideration received by the client. The entity shall collect the difference between the amount of consideration received by the client and the amount of consideration to be paid to the client in interest and, where applicable, as processing or maintenance costs (e.g. insurance .B). On the basis of IFRS 15, the repo transaction should be considered as a financing agreement that does not yield income. 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. 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 duration for the exercise of the repurchase option is one year from January 2018. .
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