When selling an automobile, TESLA makes the following “Resale Value Guarantee”,

Question

When selling an automobile, TESLA makes the following “Resale Value Guarantee”, please see the attached Poster.

QUESTION

A. (4)   From an accounting perspective, under what conditions, if any, would a “sale”

            with an agreement to repurchase the product at a later date at an agreed upon price

            be considered as a “lease”, rather than as a “sale”?   (Keep in mind that Tesla

            Motors would potentially be a “lessor” for this transaction.)  

B. (3)    Does the expected value of the vehicle at the time of repurchase, in comparison

            to the “guaranteed resale value”, matter with regard to the accounting?

C. (3)     Does Tesla Motors record such transactions as “sales” or as “leases”? If they

            record the transaction as a “lease” is it a “sales-type” lease, “direct financing”

            lease”, or “operating lease”?  

Note: Your total answer to the above questions should not exceed one page.   Recall that

           if you would like to do any research of the accounting literature, only use resources from

the Accounting Standards Codification.

RESALE VALUE GUARANTEE OWNER & VEHICLE INFORMATION Owner Name&Address; Name Address City, ST ZIP ear 2013 Resale Value ( Delivery Date] ehide Make/Model Tesla Model S Color Color Trim (60/85 kWh; Signature Welcome to the Tesla Family! Your vehicle identified above ("Vehicle") qualifies for our Resale Value Guarantee ("Guarantee"). We guarantee that your vehicle will have a resale value after 3 years of at least the Guaranteed Resale value specified above. This value is equal to 50% of the base purchase price of the 60kwhr Model s at the time of your purchase of the vehicle, plus 43% of the original purchase price for all options including the upgrade to the 85kwhr battery pack (exclusive of taxes, fees and accessories). During the period between 36 months to 39 months from your Guarantee Effective Date, you have the option to sell your vehicle to Tesla for the Guaranteed Resale Value. This Guarantee is subject to the following terms and conditions TERMS AND CONDITIONS .The Vehicle is financed through one of Tesla's official vehicle loan financing programs. The Vehicle will need to continue to be financed through this program and your account must remain in good standing for a minimum of 36 months. The Vehicle is maintained by Tesla Motors or its subsidiary according to Tesla's recommended service schedule. You must not have taken any action that would void the New Vehicle Limited Warranty on the Vehicle .The Vehicle will be inspected by Tesla and the Guaranteed Resale Value will be adjusted for damage, excessive wear and use based on Tesla's standards for normal use and for mileage in excess of 15,000 miles per year. Excess mileage will reduce your Guaranteed Resale Value at a rate of S0.25 per mile. .To exercise this Guarantee, you will need to contact us and deliver the Vehicle to us for inspection and purchase during the period between 36 months to 39 months from the Guarantee Effective Date. Prior to or in conjunction with our purchase of the Vehicle, you will need to provide proof of ownership and clear title for the Vehicle. To obtain clear title on the Vehicle, it is your responsibility to clear all outstanding obligations with the lender, including any principal amount, late payments, penalties, and other fees that may be due to the lender This Guarantee may not be assigned or transferred by you to any person or entity at any time. Only the Owner(s) identified above, and no other person or entity, including any heirs or successors, has any rights under this Guarantee. This Guarantee only applies to the vehicle identified above. Tesla Motors, Inc. and any of its successors hereto, may assign or transfer this Guarantee, or any portion thereof, to any third-party without your prior consent or approval. This Guarantee automatically expires on the 39 month anniversary of the Guarantee Effective Date. TESLA MOTORS, INC 3500 Deer Creek Rd, Palo Alto, CA 94304 p:650.681.5000 esle Motors, Inc. 2014 Resale Value Guarantee (v 20141204)

Explanation / Answer

Ans A (4) Car rental company and leasing: this is a type of Operating Lease. A lease is an operating lease if it does not transfer substantially all the risks and rewards incident to ownership from the lessor to lessee. : the financed assets remain on the lessor’s balance sheet and the lease payments should be recognised in the income statement

whereas

Sale of goods:
Revenue is recognised when the seller has transferred the significant risks and rewards of ownership of the goods to the buyer and does not repurchase the goods and the seller does not retain control over the goods or managerial involvement with them to the degree usually associated with ownership.

B (3) Yes it matter the accounting as e xpected value of the vehicle at the time of repurchase, in comparison to the “guaranteed resale value”, matter with regard to the accounting is a part of Minimum Lease payment . And in calculating lease amount we take into consideration the Minimum lease payment.

C (3) They record it as lease and which is a operating lease and operating lease is explained in Ans A(4)

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