CFM17530a - Repos: FA 2007 rules for companies:
creditor 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
Creditor repo: example
Transaction
- 1/1/09: A (borrower) sells securities to C
(lender) for 100.
- 30/6/09: A repurchases the same or similar
securities from C for 103, agreed at the outset (this includes a
finance return of 3: see
CFM17550a).
| C’s accounting entries, in accordance with
GAAP |
| 1/1/09 (making of advance): | Dr Financial Asset 100; Cr Cash 100 |
| 30/6/09 (repayment of advance): | Dr Cash 103; Cr Financial Asset 103 |
C has a creditor repo because all of the conditions in
CFM17530 are met:
Condition A: A receives an advance of money from C. Condition
B: in accordance with GAAP, C records a financial asset in respect
of that advance. Condition C: A sells securities to C. Condition D:
C is entitled or obliged to sell those or similar securities.
Condition E: in accordance with GAAP, the selling of those
securities extinguishes C’s financial asset in respect of the
advance.
Further points to note
- This transaction corresponds to the debtor
repo example at
CFM17508a (where A is a company).
- C also has a creditor repo if, under the
arrangement, it sells the securities to another person
(“B”) instead of to A. Such a transaction corresponds
to the debtor quasi-repo example at
CFM17512a (where A and B are
companies).
