When comparing the redemption price to the initial sale price, the entity must take into account the present value of the money. The impact of the present value of the money can be large enough for accounting to move from a financing agreement to a leasing contract. This transaction should be recorded as a lease in accordance with CSA 840 guidelines. The option is considered an appeal option, since the company has the right to exercise this option. At first glance, it appears that the redemption price is higher than the original sale price, but the present value of the redemption price, which is amortized at 5 percent for three years, is US$1.123. Since the repurchase price is lower than the original sale price and the transaction is not part of a sale-sale agreement, the transaction is a financial lease. As a general rule, a customer has a strong incentive to exercise an option if the redemption price is likely to exceed the market value of the deal at the time of the redemption. Since this assessment requires estimates, management must use good judgment to determine the factors that will be considered in this assessment. Repo transactions come in three different forms: repo transactions are accounted for in different ways, depending on the nature of the pension and the contractual conditions.
For call and call options, the redemption price is compared to the initial sale price to determine whether the transaction should be accounted for as a leasing or financing agreement. For sale options, the redemption price is compared to the initial sale price and the expected market value of the asset at the end of the contract, in order to determine whether the transaction should be accounted for as a lease, financing agreement or sale with right of return. CSA 606 significantly changed the centre of gravity of the pension guidelines and made things easier. This should simplify some ambiguous situations that currently occur under ASC 605. . .
