On 1 October 20X2, Laidlaw sold some maturing inventory which had a cost of $4.5 million to a bank for its fair value of $5 million. Under the terms of the sale agreement Laidlaw has the option to repurchase the inventory after a period of ten years at a price of $7.4 million. At this date the fair value of the inventory is expected to be $11 million, and the repurchase price reflects an equivalent annual rate of interest of 4%.
