However, VAS (Vietnamese Accounting Standards) does not yet provide specific guidance for this type of transaction
International Financial Reporting Standards (IFRS) 15 (replacing IAS 18 and IAS 11) has introduced a revenue recognition model for "Repurchase Agreements" and provides detailed guidance within the standard.
What is a Repurchase Agreement?
A repurchase agreement is a contract in which an entity sells an asset and simultaneously commits or has the option (within the same contract or a separate one) to repurchase that asset. The asset to be repurchased can be the asset initially sold to the customer, a similar asset to that asset, or a component of the asset sold in the initial transaction.
Types of Repurchase Agreements
The company has an obligation to repurchase goods or assets sold (a fixed-term contract).
The company has the right to repurchase the sold asset (call option).
The company is required to repurchase the asset upon customer demand (put option).
Accounting treatment for Repurchase Agreements:
Accounting Treatment for Repurchase Agreements: For these two types of agreements, under IFRS 15, the seller still retains control over the goods or assets. As a result, the revenue recognition criteria are not met. Therefore, businesses must account for these two types of contracts as one of the following transactions:
A lease agreement for the asset under IFRS 16 if the repurchase price is lower than the original selling price of the asset.
A financing arrangement if the repurchase price is greater than or equal to the original selling price of the asset.
Purchase options
Options 1: Repurchase price < Initial selling price
At the commencement of the contract, the company must assess whether the customer has a significant economic incentive (*) to exercise that option or not.
If it is determined that the customer has a significant economic incentive to exercise the option, then this arrangement is accounted for as a lease agreement under IFRS 16.
If the customer does not have a significant economic incentive to exercise their option, then this arrangement is accounted for as a sale transaction with a right of return.
(*) To determine whether the customer has a significant economic incentive to exercise their option, various factors must be considered, including the relationship between the repurchase price and the expected market value of the asset at the repurchase date, and the time period until the option expires. For example, if the repurchase price is expected to be significantly higher than the market value of the asset, this may indicate that the customer has a significant economic incentive to exercise the purchase option.
Option 2: Repurchase price > Initial selling price
At the commencement of the contract, the company must consider the expected market value of the asset and whether the customer has a significant economic incentive (*) to exercise that option or not.
If the repurchase price is higher than the expected market value of the asset, then this arrangement is accounted for as a financial support transaction.
(*) To determine whether the customer has a significant economic incentive to exercise their option, the expected market value of the asset should be assessed. If the repurchase price is greater than this expected market value, it may indicate that the customer does not have a significant economic incentive to exercise the purchase option.