# ASC 470-40-25: Debt — Product Financing Arrangements — 25 Recognition

Source: FASB Accounting Standards Codification, Basic View

[Read online](https://asc.understandingaccounting.org/asc/470/40/#25-recognition)

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## ASC 470-40-25: 25 Recognition

[Read section](https://asc.understandingaccounting.org/asc/470/40/#25-recognition)

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##### [470-40-25-1](https://asc.understandingaccounting.org/asc/470/40/#470-40-25-1)

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This Subtopic requires that a [product financing arrangement](https://asc.understandingaccounting.org/glossary/p/#product-financing-arrangement "A product financing arrangement is a transaction in which an entity sells and agrees to repurchase inventory with the repurchase price equal to the original sale price plus carrying and financing costs, or other similar transactions.") within the scope of this Subtopic be accounted for as a borrowing rather than as a sale. The sponsor is in substance the owner of the product and the sponsor shall, therefore, report the product as an asset and the related obligation as a liability.

##### [470-40-25-2](https://asc.understandingaccounting.org/asc/470/40/#470-40-25-2)

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If the sponsor is a party to an arrangement whereby another entity purchases a product on the sponsor's behalf and, in a related transaction, the sponsor agrees to purchase the product or processed goods of which the product is a component from the entity, the sponsor shall record the asset and the related liability when the product is purchased by the other entity.

##### [470-40-25-3](https://asc.understandingaccounting.org/asc/470/40/#470-40-25-3)

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Costs of the product, excluding processing costs, in excess of the other entity's purchase costs represent financing and holding costs. The sponsor shall account for such costs in accordance with the sponsor's accounting policies applicable to financing and holding costs as those costs are incurred by the other entity. For example, if insurance costs ordinarily are accounted for as period costs by the sponsor, similar costs associated with the product covered by financing arrangements shall be expensed by the sponsor as those costs are incurred by the other entity.

##### [470-40-25-4](https://asc.understandingaccounting.org/asc/470/40/#470-40-25-4)

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Interest costs associated with the product covered by financing arrangements shall be identified separately and accounted for by the sponsor in accordance with Topic 835 as those costs are incurred by the other entity.