Question

Financial reporting requires that firms recognize product financing arrangements as liabilities
if which of the following conditions is met?

		The arrangement requires the sponsoring firm to purchase the inventory, substantially identical inventory, or processed goods of which the inventory is a component at specified prices.
		The selling or sponsoring firm physically controls the inventory.
		The payments made to the other entity cover all acquisition, holding, and financing costs.
		Both A and C are correct.

Answer 1

The correct option is D. “Both A and C are correct”.

Explanation: An agreement is considered as product financing agreement when the seller promises to repurchase the goods sold at a decided price and the payment made to another party covers all the costs related to purchase. The seller does not control the inventory.

Therefore, option A and C are correct and the correct option is (D).

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