Revenue – ifrs 15 handbook

A put option 
If a customer has a right to require the entity to repurchase the asset (a put option) 
at a price that is lower than the original selling price, then at contract inception 
the entity assesses whether the customer has a significant economic incentive 
to exercise the right. To make this assessment, an entity considers factors 
including the:
– relationship of the repurchase price to the expected market value of the asset at 
the date of repurchase; and 
– amount of time until the right expires.
IFRS 15.B70, B72
If the customer has a significant economic incentive to exercise the put option, 
then the entity accounts for the agreement as a lease, unless the contract is part 
of a sale-and-leaseback transaction. Conversely, if the customer does not have a 
significant economic incentive, then the entity accounts for the agreement as the 
sale of a product with a right of return (see 
Section 10.1
). 
If a repurchase arrangement that would otherwise be accounted for as a lease is 
part of a sale-and-leaseback transaction, then the entity continues to recognise the 
asset and recognises a financial liability for any consideration received. The entity 
accounts for the financial liability under the financial instruments standard.
IFRS 15.B73, B76
If the repurchase price of the asset is equal to or greater than the original selling 
price and is more than the expected market value of the asset, then the entity 
accounts for the contract as a financing arrangement. In this case, if the option 
expires unexercised, then the entity derecognises the liability and the related asset 
and recognises revenue at the date on which the option expires.
IFRS 15.B75
When comparing the repurchase price with the selling price, the entity considers 
the time value of money.
Put option
(a customer’s right to require the seller to repurchase the asset)
Sale with a right
of return
Lease
1
Financing arrangement
Repurchase price greater
than expected market value
of asset?
Customer has significant
economic incentive to exercise
the put option?
No
Yes
No
Repurchase price equal to or greater than original
selling price?
Yes
Yes
No
1. Unless the contract is part of a sale-and-leaseback transaction.

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154 | Revenue – IFRS 15 handbook