The customer’s right changes the analysis
Ind AS 115 paragraphs B70–B76 address a seller’s obligation to repurchase an asset at the customer’s request: a put option. Classification depends on the repurchase price, original selling price, expected market value and the customer’s economic incentive, with time value of money considered. A contractual document headed sale is not enough to conclude that the receipt is revenue. This guide addresses customer puts, distinct from seller forwards and call rights.
Read the applicable text: ICAI Ind AS 115: B68 and B70–B76 ICAI 2025–26 compendium, Volume I.
Below the original selling price
B70 requires assessment at contract inception of whether the customer has a significant economic incentive to exercise. B71 identifies the expected repurchase-date market value and time until expiry among relevant factors. A repurchase amount materially above expected market value can indicate such an incentive. With the incentive, account as a lease under Ind AS 116, subject to the sale-and-leaseback exception in B70; without it, B72 directs sale-with-right-of-return accounting under B20–B27.
Equal to or above the original selling price
Under B73, where that repurchase price also exceeds expected market value, the arrangement is in effect financing and follows B68. B74 addresses a repurchase price at least equal to original selling price but no more than expected market value where there is no significant economic incentive: apply the right-of-return model. Preserve the market evidence and incentive conclusion rather than applying a price-only decision tree.
Measure financing separately from sales
B68 keeps the asset recognised and records a financial liability for consideration received. The difference between consideration received and payable is interest and, where applicable, processing or holding costs. Do not recognise a gross sale merely because cash arrives. B75 requires time value of money when comparing repurchase and selling prices; nominal-price comparisons can misclassify longer contracts.
Exceptions and subsequent events
For a below-selling-price put with significant incentive that is part of a sale-and-leaseback transaction, B70 requires continued asset recognition and a financial liability accounted for under Ind AS 109. B76 addresses an option that lapses unexercised: derecognise the liability and recognise revenue. Apply that instruction to the relevant arrangement and actual facts; do not book an assumed lapse at inception or use it to override the separate lease-accounting model.
Evidence for the classification memo
Document who holds the right, inception terms, expected market value at the relevant date, valuation uncertainty, expiry and discounting. Quantitative spreads inform the economic-incentive judgement without creating a bright-line percentage. The examples assume supported market estimates and, except for the explicit discounting example, immaterial time-value effects. They illustrate classification rather than a complete lease, return-asset or credit-loss computation.
Six worked illustrations
All facts and amounts are fictional. Calculations illustrate the stated assumptions, not a predetermined legal outcome.
Illustrative example 1: Below selling price but attractive to the customer
Selling price is ₹10 lakh, put price ₹8 lakh and supported expected market value at exercise ₹5 lakh. The put exceeds that value by ₹3 lakh. Assuming this establishes a significant incentive at inception and no sale-and-leaseback, B70 points to lease accounting. The ₹2 lakh difference from selling price alone does not establish a sale.
Illustrative example 2: Below selling price without significant incentive
Selling price is ₹10 lakh, put price ₹6 lakh and expected market value ₹8 lakh. The put is ₹2 lakh below that expected value. Assume all factors support no significant incentive: B72 directs sale-with-right-of-return accounting. This does not mean recognising the full ₹10 lakh without the return-model measurement.
Illustrative example 3: Financing branch
Selling price is ₹10 lakh and put price ₹11 lakh, above expected market value ₹7 lakh by ₹4 lakh. With time value assumed immaterial, B73 directs financing accounting. On receipt, recognise the ₹10 lakh liability while continuing asset recognition; the ₹1 lakh difference requires the B68 interest/other-cost analysis.
Illustrative example 4: Higher put price with no incentive
Selling price is ₹10 lakh, put price ₹11 lakh and expected market value ₹13 lakh. The put is ₹2 lakh below expected value. With no significant incentive and immaterial time-value effects assumed, B74 points to sale-with-right-of-return accounting, rather than automatic financing merely because ₹11 lakh exceeds ₹10 lakh.
Illustrative example 5: Nominal comparison is insufficient
An inception sale-price reference is ₹10 lakh and the put is ₹12.1 lakh payable two years later. At an explicitly assumed appropriate 10% annual discount rate, its present value is ₹12.1 lakh / 1.1 squared = ₹10 lakh. The nominal ₹2.1 lakh spread disappears on that basis. Apply the relevant market-value and incentive tests as well; this calculation alone does not decide classification.
Illustrative example 6: Sale-and-leaseback exception
An arrangement has a ₹20 lakh receipt, ₹16 lakh put and expected market value ₹10 lakh, with a supported significant incentive. Assume it is part of a sale-and-leaseback. The put exceeds expected value by ₹6 lakh, but B70’s exception requires continued asset recognition and a ₹20 lakh initial financial liability for the receipt, with Ind AS 109 accounting. Do not apply the ordinary B70 lease conclusion mechanically.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Identify who holds the repurchase right | Executed agreement and side letters. |
| 2 | Record inception terms | Original price, put price and dates. |
| 3 | Estimate relevant market value | Supported repurchase-date valuation. |
| 4 | Assess incentive at inception | Market spread, term and other factors. |
| 5 | Consider time value of money | Appropriate supported discounting. |
| 6 | Select the correct branch | B70–B74 classification memo. |
| 7 | Test sale-and-leaseback involvement | Specific B70 exception analysis. |
| 8 | Apply the resulting measurement model | Ind AS 116, B68/109 or B20–B27 as appropriate. |
| 9 | Monitor exercise or lapse | Actual option status and B76 review. |
| 10 | Approve presentation | Asset, liability, revenue and disclosure reconciliation. |
Sixteen practitioner FAQs
1. Is this the same as a seller’s call option?
No. This analysis addresses the customer’s put right.
2. Does the document’s sale label determine revenue?
No. Apply the repurchase guidance and control analysis.
3. When is economic incentive assessed under B70?
At contract inception.
4. Is expected market value relevant?
Yes. B71 expressly identifies that relationship as a factor.
5. Is there a fixed percentage incentive threshold?
The cited guidance does not prescribe one.
6. What else matters besides the market spread?
Consider relevant factors, including time until expiry.
7. Does every below-price put produce a lease?
No. Significant incentive and the sale-and-leaseback exception matter.
8. What if there is no significant incentive below original price?
B72 directs right-of-return accounting.
9. Does every above-original-price put mean financing?
No. B73 and B74 also consider expected market value and the applicable conditions.
10. What happens to the asset in a financing arrangement?
B68 requires continued recognition.
11. What liability accompanies financing proceeds?
A financial liability for the consideration received.
12. Is the difference from repayment always sales profit?
No. B68 requires interest and applicable processing/holding-cost analysis.
13. Can nominal prices be compared without discounting?
B75 requires consideration of time value of money.
14. Does the discounting example prescribe a 10% rate?
No. That is an explicit illustrative assumption.
15. Can a sale-and-leaseback put require a financial liability?
Yes, under the specific B70 exception described here.
16. Can an option be assumed to lapse at inception?
No. Track the actual facts and apply the relevant subsequent accounting.
Official sources
ICAI Ind AS 115: B68 and B70–B76 ICAI 2025–26 compendium, Volume I