Check who can require the asset to come back
Ind AS 115 B64–B69 addresses an agreement to sell an asset and promise or have the option to repurchase it, in the same or another contract. If the seller must repurchase under a forward or can repurchase under its call option, the customer does not obtain control for this analysis despite possible physical possession. A customer put is a different branch under B70–B76 and is outside the worked examples here.
Read the applicable text: MCA: Ind AS 115, paragraphs B64–B76.
Compare prices on a consistent time basis
Under B66 and B67, compare the repurchase amount with the original selling price after considering time value of money. A lower repurchase amount generally leads to lease accounting under Ind AS 116, subject to the sale-and-leaseback exception. Equal or greater leads to financing under B68. A nominally higher repurchase price need not remain higher after a supported time-value comparison. Document the cash dates, cash flows and basis of the rate selected; the examples use hypothetical rates, not a prescribed rate.
Handle the sale-and-leaseback exception separately
Under B66(a), where the otherwise lower-price arrangement is part of a sale and leaseback, continue to recognise the asset and recognise a financial liability for the consideration received, accounting for that liability under Ind AS 109. Do not use the ordinary lower-price lease branch to book a sale in that case. Assess the precise transaction and related standard requirements before posting any entries.
Record the financing and the later release
For the B68 financing branch, continue recognising the underlying asset and recognise a financial liability for the proceeds. Account for the difference between cash received and cash repaid as interest and, where applicable, processing or holding costs. Recognise interest over the financing period and assess the timing of any other costs separately. The rate used to compare the two prices under B67 does not by itself set the interest measurement under B68. B69 directs the entity to derecognise the liability and recognise revenue if the option lapses unexercised; review derecognition of the related asset and recognition of its cost separately.
Make the control analysis reproducible
Review the sale, side letters, repurchase terms, identity of the asset and which party can trigger the return. B64 includes the original asset, a substantially identical asset or another asset of which the original was a component. Link the legal terms to the accounting branch, cash and asset registers, and reassess when an option is exercised or expires.
Six worked illustrations
All facts and amounts are fictional. Calculations illustrate the stated assumptions, not a predetermined legal outcome.
Illustrative example 1: Lower price for a seller call
A supplier receives ₹1,00,000 and has a seller call for ₹80,000 after one year. At an illustrative 5% rate the repurchase amount has a present value of about ₹76,190, below ₹1,00,000. Assuming no sale and leaseback, apply the lease branch; do not record sale revenue at inception.
Illustrative example 2: Forward with a financing spread
Cash received is ₹1,20,000; the seller must repay ₹1,32,000 in one year. At an illustrative 5% comparison rate the present value is about ₹1,25,714. It remains above the original price. Initial financing liability is ₹1,20,000; absent separately identified costs, the ₹12,000 spread is interest over the financing period. The illustrative 5% comparison rate does not determine that interest amount.
Illustrative example 3: A higher nominal amount that discounts below the price
The seller receives ₹1,00,000 and can repurchase for ₹1,03,000 after one year. At an illustrative 8%, present value is about ₹95,370. With no sale and leaseback, the time-adjusted comparison points to the lease branch.
Illustrative example 4: Exact equality on a time-adjusted basis
Assume ₹2,00,000 is received now and a forward requires ₹2,12,000 in one year. At a supported hypothetical rate of 6%, the present value is exactly ₹2,00,000. Equality falls into the financing branch.
Illustrative example 5: Lower price in a sale-and-leaseback arrangement
Assume the original proceeds are ₹3,00,000 and the time-adjusted repurchase price is ₹2,40,000, a difference of ₹60,000. Where the B66(a) sale-and-leaseback exception applies, continue recognising the asset and initially recognise a ₹3,00,000 financial liability rather than recording an asset sale.
Illustrative example 6: Unexercised option in financing branch
An option in a financing arrangement expires unexercised. Assume the liability immediately before lapse is ₹95,000 and no refund or other continuing obligation remains. Under B69, derecognise that liability and recognise ₹95,000 revenue on the assumptions; review the related asset cost separately.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Collect all linked agreements | Sale, option, side letters and amendments |
| 2 | Identify the asset that can return | Serial number or substantially identical asset evidence |
| 3 | Identify the option holder or obligation | Executed repurchase clause |
| 4 | Separate forwards and calls from puts | Rights and exercise matrix |
| 5 | Determine the original selling price | Contract and cash schedule |
| 6 | Compare the repurchase price on a time basis | Documented cash dates and rate working |
| 7 | Check the sale-and-leaseback exception | Ind AS 116 and Ind AS 109 review |
| 8 | Record the selected branch | Asset and liability accounting file |
| 9 | Track exercise and lapse dates | Option register and counterparty evidence |
| 10 | Reconcile the reporting close | Asset, financing, lease and revenue records |
Sixteen practitioner FAQs
1. Does a sale invoice prove transfer of control?
No. Review the repurchase terms and B65–B66.
2. What is a seller call in this context?
A seller right to buy back the asset.
3. What is a forward in this context?
A seller obligation to buy back the asset.
4. What if the customer holds the right instead?
Apply the separate put-option guidance in B70–B76.
5. Does physical possession decide the answer?
No. B66 addresses limits on customer control despite possible possession.
6. Does a separate agreement make the repurchase irrelevant?
No. B64 includes a promise or option in another contract.
7. Must it always be the same serial-numbered unit?
No. B64 can also cover substantially identical assets and specified component cases.
8. Should the comparison use only nominal rupee amounts?
No. Consider time value of money under B67.
9. Is there a universal discount rate in these paragraphs?
No. Support the comparison basis using the transaction facts.
10. Where does exact price equality fall?
In the financing branch, after the time-value comparison.
11. When does a lower seller repurchase amount lead to a lease?
Generally under B66(a), unless the sale-and-leaseback exception applies.
12. Does the lower-price sale-and-leaseback exception produce immediate sale revenue?
No. The asset remains recognised and the proceeds produce a financial liability under the stated guidance.
13. Does financing remove the original asset?
No. B68 requires continued recognition.
14. Is every rupee of the spread necessarily interest?
Consider separately identifiable processing or holding costs if applicable.
15. What happens when a qualifying option expires unused?
Under B69, derecognise the liability and recognise revenue when the relevant repurchase option expires unexercised. Assess the related asset and cost separately.
16. Can the GST or legal invoice treatment settle this accounting issue?
No. Apply the financial reporting control test and the other frameworks separately.