Pension transactions are accounted for in different ways depending on the type of repurchase transaction and the terms of the contract. In the case of leasing and calling options, the repurchase price is compared to the original sale price to determine whether the transaction should be considered as a leasing or financing agreement. In the put options, the repurchase price is compared to the initial sale price and the expected market value of the asset at the end of the contract, to determine whether the transaction should be counted as a lease, financing contract or return sale. ASC 606 has significantly changed the focus of the retirement operations guidelines and has become easier. This should simplify some of the ambiguous situations that are currently occurring under asc 605. Generally speaking, a customer has a strong incentive to exercise an option when the repurchase price is expected to exceed the market value of the goods at the time of redemption. Because this assessment requires estimates, management must exercise good judgment in determining the factors that are included in this assessment. A company enters into a contract to sell a facility to a debiteur for $1,200. The contract offers the entity the opportunity to repurchase the asset at a price of $1300 within three years.
The transaction is not part of a lease-sale agreement. The company uses a discount rate of 5 per cent for similar transactions. Should this transaction be counted as a lease or financing agreement? Under a put option, the debtor may require the entity to repurchase the asset by exercising the option. With this option, the customer can enjoy all the benefits of the installation, indicating that the debitor has control of the installation. The selling options are accounted for in one of three ways, on the basis of (1) if the repurchase price is more or less than the original selling price, (2) if the repurchase price is more or less than the expected market value and (3) if the customer has a strong incentive to make use of the option: the financing agreements receive the same accounting treatment as the forward and call options.