Home › CA Final › financialreporting › measureprogress › An entity sells an asset for ₹10 lakh on 1 Janua…
An entity sells an asset for ₹10 lakh on 1 January, with a PUT OPTION giving the CUSTOMER the right to return the asset for ₹9 lakh by 31 December. Expected market price at the put date = ₹7.5 lakh. Under Ind AS 115, this is:
AA financing arrangement — ₹10 lakh recognised as a liability
BA bill-and-hold arrangement — revenue recognised when the put expires unexercised
CA normal sale — revenue ₹10 lakh on 1 January because the put is at the customer's discretion
DA LEASE under Ind AS 116 — the customer has significant economic incentive to exercise the put (₹9L >> ₹7.5L market), so control hasn't passed; the differential is recognised as lease income over the period
Answer & Solution
Correct answer: D. A LEASE under Ind AS 116 — the customer has significant economic incentive to exercise the put (₹9L >> ₹7.5L market), so control hasn't passed; the differential is recognised as lease income over the period
Para B70-B72 — for a put option, the entity evaluates whether the customer has SIGNIFICANT ECONOMIC INCENTIVE to exercise. If repurchase price significantly exceeds expected market value, the customer is incentivised to put → treated as a LEASE. (If repurchase price > original price + expected market, it's a financing. If put < original price with no significant incentive, treat as sale with right of return.)
Related questions
An entity manufactures a customised satellite for a government agency. The asset has practA consumer-goods manufacturer pays a retailer ₹1 cr in SLOTTING FEES to secure prominent sAFS provides audit services to WBC with a 15% margin (matching AFS's typical margin). If WAn entity has cost-to-cost input method on a long-term construction contract. During the yA bill-and-hold arrangement under Ind AS 115 allows revenue recognition with goods still iAn entity sells a tangible asset on 1 January for ₹10 lakh with a customer PUT OPTION at ₹Pogo grants Toy Manufacturer a 3-year licence to use the "Chhota Bheem" character on toys.Under Ind AS 115, a licence of INTELLECTUAL PROPERTY is treated as a "RIGHT TO ACCESS" (re