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An entity sells a tangible asset on 1 January for ₹10 lakh with a customer PUT OPTION at ₹9 lakh by 31 December; expected market price ₹9.5 lakh. The customer has NO significant economic incentive to exercise the put. Under Ind AS 115:
AAccount as a financing arrangement — record ₹10 lakh as a liability
BAccount as a bill-and-hold arrangement with revenue at expiry of the put
CAccount as the sale of a product with a RIGHT OF RETURN — recognise revenue net of estimated returns; the put is not a financing or lease
DAccount as a lease under Ind AS 116 — recognise lease income over the period
Answer & Solution
Correct answer: C. Account as the sale of a product with a RIGHT OF RETURN — recognise revenue net of estimated returns; the put is not a financing or lease
Para B71 — when the put repurchase price is LESS than the original sale price AND the customer has no significant economic incentive to exercise (here ₹9L vs ₹9.5L market — no incentive to put), treat as a SALE WITH RIGHT OF RETURN. Apply para B20-B27 (revenue net of expected returns, refund liability, asset for right-to-recover).
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