sale and repurchase agreement

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An arrangement in which an asset is sold by one party to another on terms that provide for the seller to repurchase the asset under certain circumstances. Sale and repurchase agreements, which are examples of off-balance-sheet finance, are dealt with by Financial Reporting Standard 5, Reporting the Substance of Transactions; for financial assets, the relevant International Accounting Standard is IAS 39, Financial Instruments: Recognition and Measurement. In a number of cases the agreement will in substance be that of a secured loan in which the seller retains the risks and rewards of ownership of the asset. In these cases the seller should show the original asset on the balance sheet, together with a liability for the amounts received from the buyer.

Subjects: Accounting.

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