Economics · Financial Accounting
On 31 December 20X1, AB entered into a transaction to sell legal title to inventories that would take time to mature. The cost of the inventories at that date was $450,000. The inventories were sold to a financial institution for $420,000 with an option allowing AB to repurchase them on 31 December 20X3 for $463,050. It was highly expected that AB would exercise the option. How should this transaction be accounted for in AB's financial statements for the year ended 31 December 20X1 under IFRS standard rules?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1The inventories should be recorded at $450,000 and the $420,000 received reported as a liability, with the full interest expense of $43,050 recognized immediately in profit or loss.
- 2The inventories should continue to be recorded in the statement of financial position at $450,000 and the $420,000 received should be reported as a financial liability.✓
- 3The inventories should be recorded at $420,000 and the cash received reported as a liability, with a $30,000 write-down reported in profit or loss.
- 4The inventory cost of $450,000 should be recognized in cost of sales and revenue of $420,000 should be recognized.
Correct answer
The inventories should continue to be recorded in the statement of financial position at $450,000 and the $420,000 received should be reported as a financial liability.
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