The IASB and FASB considered:
- repurchase agreements; and
- sales of assets that are not an output of an entity's ordinary activities.
The boards tentatively decided that the forthcoming Exposure Draft will explain how an entity would determine whether a buyer obtains control of an asset subject to a repurchase agreement:
- If a buyer has the unconditional right to require the entity to repurchase the asset (a put option), the buyer obtains control of the asset, and the entity should account for the agreement similarly to the sale of a product with a right of return.
- If an entity has an unconditional obligation or unconditional right to repurchase the asset (a forward or a call option), the buyer does not obtain control of the asset. The entity should account for the repurchase agreement as:
(a) a lease in accordance with FASB Accounting Standards Codification� Topic 840 Leases or IAS 17 Leases if the entity repurchases the asset for less than the original sales price of the asset (ie the buyer pays a net amount of consideration to the entity).
(b) a financing arrangement if the entity repurchases the asset for more than the original sales price of the asset (ie the entity pays a net amount of consideration to the buyer).
- If the sale and repurchase agreement is a financing arrangement, the entity would continue to recognise the asset and would recognise a financial liability for any consideration received from the buyer. The entity would recognise the difference between the amount of consideration received from the buyer and the amount of consideration paid to the buyer as interest and, if applicable, as holding costs (eg insurance).
The FASB tentatively decided to remove Subtopic 470-40 Debt - Product Financing Arrangements from the Accounting Standards Codification.
Sales of assets that are not an output of an entity's ordinary activities
The boards tentatively decided that an entity should apply the recognition and measurement principles of the proposed revenue model to contracts for the sale of the following assets that are not an output of the entity's ordinary activities:
- intangible assets within the scope of Topic 350 Intangibles - Goodwill and Other or IAS 38 Intangible Assets; and
- property, plant and equipment within the scope of Topic 360 Property, Plant, and Equipment or IAS 16 Property, Plant and Equipment or IAS 40 Investment Property.
Consequently, the entity would:
- derecognise the asset when the buyer obtains control of the asset, and
- recognise at that date a gain or loss equal to the difference between the transaction price and the carrying amount of the asset. The transaction price would be limited to amounts that can be reasonably estimated at the date of transfer.
The boards plan to publish the exposure draft in June.