（iii）Vehicle sales

　　Carpart sells vehicles on a contract for their market price （approximately $20，000 each）at a mark-up of 25% on cost. The expected life of each vehicle is five years. After four years，the car is repurchased by Carpart at 20% of its original selling price. This price is expected to be significantly less than its fair value. The car must be maintained and serviced by the customer in accordance with certain guidelines and must be in good condition if Carpart is to repurchase the vehicle.

　　The same vehicles are also sold with an option that can be exercised by the buyer two years after sale. Under this option，the customer has the right to ask Carpart to repurchase the vehicle for 70% of its original purchase price. It is thought that the buyers will exercise the option. At the end of two years，the fair value of the vehicle is expected to be 55% of the original purchase price. If the option is not exercised，then the buyer keeps the vehicle.

　　Carpart also uses some of its vehicles for demonstration purposes. These vehicles are normally used for this purpose for an eighteen-month period. After this period，the vehicles are sold at a reduced price based upon their condition and mileage. （10 marks）

　　Professional marks will be awarded in question 3 for clarity and quality of discussion. （2 marks）

　　Required：

　　Discuss how the above transactions would be accounted for under International Financial Reporting Standards in the financial statements of Carpart.

　　Note. The mark allocation is shown against each of the arrangements above.

（25 marks）

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