Some contracts include a pension contract that allows an entity to buy back the asset for sale. Accounting treatment depends on the nature of the pension contract and the contractual terms. Pension transactions that are considered financial instruments are not within the scope of this article. The rest of this article explains how pension transactions can be taken into account and changes are described in the codification of Accounting Standards (CSA) 605 to CSA 606. Buyback contracts can be concluded between a large number of parties. The Federal Reserve enters into pension contracts to regulate money supply and bank reserves. Individuals generally use these agreements to finance the purchase of bonds or other investments. Pension transactions are short-term assets with maturity terms called „rate,” „term” or „tenor.” This transaction should be counted as a financing agreement. The option is classified as a put option, since the customer has the right to exercise the option. The repurchase price is more than the initial asset price and the expected market value of the asset, making the transaction a financing agreement (the client provides financing to the entity). The company recognizes a liability of $1,500 for the consideration received from the customer. If the client exercises the option in three years, the company registers $100 ($1600 to $1,500) in interest charges and withdraws liability. However, if, at the end of the three years, the customer decides not to exercise the option, the company recognizes a turnover of $1500 and cancels the liability.
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? An accounting position is indicated in the form of a secured credit and not a „sale” transaction. The process for determining the nature of a pension contract has changed significantly from ASC 605 to ASC 606.