Provisions for residual value risks Residual risks are risks that the Volvo Group should eliminate at a loss in the future if the price of these products is less than expected at the time of the contract. Residual value risks relate to operating leases and sales transactions with residual value commitments (buybacks and tradebacks) for which Volvo Group has a residual value obligation. Most of these contracts are recorded on the balance sheet as assets under a simple lease or as a right of return. During the period, the depreciable amount of the income statement is adjusted to match the estimated future value of net performance, to permanently reflect potential residual value risks at the end of the term of the contract. 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. Residual value bonds that are independent of the revenue activity are not recorded on the balance sheet as assets in leasing or return transactions, so the potential residual value risks associated with these contracts are recorded as provisions. To the extent that the residual value does not meet the definition of a provision, the gross outstanding is recorded as a potential liability.
Turnover is usually recorded at the Point of Sale, as time and amount are known with certainty. One exception to this rule is long-term construction projects. Measures for long-term construction projects are difficult, as many things are planned and estimated. Two basic methods of accounting for long-term construction contracts are recognized by accounting: percentage of completion and completed contractual methods. Residual value commitments amounted to SEK 1,118 million (1,766) and represented revenue transactions with residual value commitments (buybacks and tradebacks) that are independent of revenue and were therefore not accounted for as assets on the balance sheet. The amount corresponds to gross risk and has not been reduced from the estimated net selling price of the products used as collateral. When used products related to these transactions are expected to be eliminated at a loss, a provision for residual value risk is recorded. The sale with a repurchase agreement is a transaction where the seller of the commodity enters into a subsequent repurchase agreement at an agreed price at the time of the sale of the goods. This is another form of loan in which the loan is given indirectly by the purchase of the shares or the seller`s guarantee. As a general rule, the repurchase price is higher than the selling price called interest rate. At transtutors.com, our excellent and experienced tutors offer accounting and homework assistance tasks at very low prices. The concept of a buyback agreement refers to a commercial agreement in which one party sells inventories to another party, with the promise of buying back the stock at a later date.
As part of a repurchase agreement, the seller is able to finance his inventory without declaring liabilities or assets on the entity`s balance sheet. Financing agreements also become an accounting treatment as forwards and call options. The accounting treatment of sales with return rights goes beyond the scope of this article, but it is dealt with in detail in the return and acceptance rights of customers.