Triangle plc is in the process of preparing its draft financial statements for the year to 31 March 20X2. LO6 On 1 April 20X1 Triangle sold maturing inventory that had a carrying value of £3 million (at cost) to Factorall, a finance house, for £5 million. Its estimated market value at this date was in excess of £5 million. The inventory will not be ready for sale until March 20X3 and will remain on Triangle’s premises until this date.

The sale contract includes a clause allowing Triangle to repurchase the inventory at any time up to 31 March 20X5 at a price of £5 million plus interest of 10% p.a. compounded from 1 April 20X1. The inventory will incur storage costs until maturity. The cost of storage for the current year of £300,000 has been included in trade receivables (in the name of Factorall). If Triangle chooses not to repurchase the inventory, Factorall will pay the accumulated storage costs on 31 March 20X5.

The proceeds of the sale have been debited to the bank and the sale has been included in Triangle’s sales revenue.

Required:

Discuss how this item should be treated in Triangle’s financial statements for the year ended 31 March 20X2 in accordance with IFRS 15 Revenue from Contracts with Customers. Your answer should quantify amounts where possible.