Page 162 - FR Integrated Workbook 2018-19
P. 162
Chapter 12
Illustration 3 cont.
The purchase price is the price at the date the machines were first delivered.
This suggests that the sale actually takes place at the delivery date.
Canterbury has to purchase any inventory still held six months after delivery.
Therefore Canterbury is exposed to slow payment and obsolescence risks.
Because Canterbury can return the inventory before that time, this exposure is
limited.
It appears that both parties experience risks and benefits. However, although
the agreement provides for the return of the machines, in practice this has
never happened.
Conclusion: The machines are assets of Canterbury and should be included in
its statement of financial position. Therefore Gillingham can recognise revenue
when the machines are despatched to Canterbury.
1.6.2 Sale and repurchase agreements
A repurchase agreement is where an entity sells an asset but retains a right to
repurchase the asset. This is often not recognised as a sale, but as a secured loan
against the asset.
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