On 31 December 20X1, AB Co entered into a transaction to sell inventories (which require time to mature) to a financial institution for $420,000. The cost of the inventories was $450,000. The agreement includes an option for AB Co to repurchase the inventories on 31 December 20X3 for $463,050. At that date, the inventories are expected to have a market value of $540,000, and AB Co is highly likely to exercise the repurchase option. How should AB Co account for this transaction in its financial statements for the year ended 31 December 20X1, in accordance with IFRS?

Question

Accepted Answer

Keep the inventories on the statement of financial position at $450,000, recognise a financial liability of $420,000, and treat the transaction as a financing arrangement, recognizing finance costs over the 2-year period.

Answer

Keep the inventories on the statement of financial position at $450,000, recognise a liability of $420,000, and record no profit or loss impact in 20X1.

Answer

Record the inventories in the statement of financial position at $420,000, recognise a liability of $420,000, and report a $30,000 write-down in profit or loss.

Answer

Recognise revenue of $420,000 and a cost of sales of $450,000 in profit or loss.

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