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An entity sells a tangible asset for ₹10 lakh on 1 January, with a CALL OPTION to repurchase for ₹11 lakh on or before 31 December. Under Ind AS 115, this transaction is:
AA normal sale with revenue of ₹10 lakh recognised on 1 January
BA FINANCING ARRANGEMENT — the asset stays on the entity's books; ₹10 lakh recognised as a liability; the ₹1 lakh differential is finance cost recognised over the year
CA bill-and-hold arrangement with revenue recognised pro-rata over the year
DA lease under Ind AS 116 (since the repurchase price is below original sale price)
Answer & Solution
Correct answer: B. A FINANCING ARRANGEMENT — the asset stays on the entity's books; ₹10 lakh recognised as a liability; the ₹1 lakh differential is finance cost recognised over the year
Para B66-B67 — when the entity has a CALL OPTION (or forward) to repurchase at a price EQUAL TO OR MORE than original sale price, the arrangement is a FINANCING. Asset stays on books, cash received = liability, differential = interest. (Lease treatment applies only if the repurchase price is LESS than original — and only when the call/forward isn't part of a sale-and-leaseback.)
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