accounting problem?

Question

Hey Just give me a hint or just tell me what the possible problem is, I do not ask you to solve it for me, just I need a little help here.

The problem is:
Green Prince, a cannery specializing in no-chemical vegetables, sold most of its inventory of canned green beans to Hardy Holdings. Green Prince expects to repurchase the inventory as it needs to fulfill customers’ orders and has entered a repurchase agreement. The repurchase agreement specifies that it will negotiate the price to be paid at the time of repurchase.
the Question is: State the potential accounting problem

Answer 1

The pervious person is technically correct, but it doesn't answer the question as it refers to the accounting problem. Here's the answer.

A liability (and the offsetting expense) cannot be recorded on the financial statements under GAAP rules because only two of the three factors (i.e. past event, probable, measurable) have been satisfied. The first two are satisfied as the event is in the past (i.e. they have an agreement) and it is probable (i.e. it is assumed that the agreement is enforceable by both parties). However, the third - measurable - has not been satisfied. Since no price has been agreed upon, this is called a contingent liability. Contingent liabilities are reported in the footnotes, but not on the balance sheet. Other well known contingent liabilities are litigation exposure for meritous lawsuits- you know it happened and you're probably going to lose but you don't know how much you'll be dinged.

Answer 2

As I see it, they are going to run into problems at repurchase since no aggrement for a fixed price is in place, potentially they can be charged significantly more than what they sold for..Therefore they will repurchase at a loss. I would say that the problem lies in no set price for repurchase..