CFM17508a - Repos: FA 2007 rules for companies: debtor repo example
This guidance describes the corporation tax treatment of sale and repurchase arrangements (“repos”) where the initial sale of securities takes place on or after 1 October 2007
Debtor repo: example
Transaction
- 1/1/09: The borrower (A) sells securities to the lender (C), for which it receives an advance of 100.
- 30/6/09: A repurchases the same or similar securities from C for 103, agreed at the outset (this includes a finance charge of 3: see CFM17528a).
| A’s accounting entries, in accordance with GAAP | |
| 1/1/09 (receipt of advance): | Dr Cash 100; Cr Financial Liability 100 |
| 30/6/09 (repayment of advance): | Dr Financial Liability 103; Cr Cash 103 |
A has a
debtor repo because all of the conditions in
CFM17508 are met:
Condition A: A receives an advance of money from C. Condition
B: in accordance with GAAP, A records a financial liability in
respect of that advance. Condition C: A sells securities to C.
Condition D: A is entitled or obliged to buy those or similar
securities. Condition E: in accordance with GAAP, the buying of
those securities extinguishes A’s financial liability in
respect of the advance.
Further points to note
- This example corresponds to the creditor repo example at CFM17530a (where C is a company).
- A also has a debtor repo if, under the arrangement, it purchases the securities from another person (“D”) instead of repurchasing them from C. Such a transaction corresponds to the creditor quasi-repo example at CFM17534a (where C and D are companies).
