Sale with an option of Buy Back

This query is : Resolved

Guest

Guest (Querist)

17 June 2010 Dear friends,

I would like to know what would be the accounting treatment when we sell with an option of Buyback.

For eg, I have sold a property with an option of BuyBack.

What i would like to know is

1. would the money recieved from the party be treated as sales in the year of its receipt from the party
2. We have paid some advance to the party as part of the buy back option. How will i treat the same in the books of accounts.

Thanks
Anitha Serrao

M Prabhakar Menon

M Prabhakar Menon (Expert)
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17 June 2010 The option to buy back is not a transaction its a right, an invisible asset.The amount received on sale will be credited as sale proceeds in the year of its receipt. The amount paid as advance will be treated as any other advance.

Guest

Guest (Querist)

17 June 2010 Hi,

Thanks for the reply.

But further, what i would like to know is I have already treated the sale as sale and now we have paid some sum as advance to the party towards the buy back option.

The only difference now would be now the party's account would be showed under Advance paid to the party and not under the head Debtors right?

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M Prabhakar Menon

M Prabhakar Menon (Expert)
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18 June 2010 U can rectify the error now.debtors will include only amounts due on normal sale,moreover this is a payment made by u as an advance.