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A financial asset is sold under repurchase agreement that provides the TRANSFEROR with a RIGHT OF FIRST REFUSAL to repurchase at fair value if the transferee subsequently sells it. Under Ind AS 109, the financial asset is:
APartially derecognised based on the probability of first-refusal exercise
BDerecognised — first refusal at fair value is not a substantive retention of risks and rewards
CTreated as continuing involvement with measurement at fair value through OCI
DNot derecognised — any form of repurchase right blocks derecognition
Answer & Solution
Correct answer: B. Derecognised — first refusal at fair value is not a substantive retention of risks and rewards
A simple right of first refusal at FAIR VALUE on a subsequent sale does NOT involve the transferor retaining material upside/downside risks. The transferor would pay the then-current market price if it chose to exercise the right. Substantially all risks and rewards have been transferred → derecognise. (Contrast with a fixed-price repurchase agreement, which retains the price risk and prevents derecognition.)
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