How to account for the great wines bought en primeur in the ultimate goal of achieving capital gains, even as the activity of the company is totally different?
The Irenas Bookkeeper studies of the CNCC (CNCC bulletin No. 167) examined the case of a joint stock company, developing a debt collection activity, with significant surplus cash consecutive to the development reserves of the Company’s profits. The company wanted to put these surplus by diversifying its holdings by acquiring wines en primeur in the ultimate goal of achieving capital gains
The Commission accounting studies was first recalled that the wines in investment transactions purchased en primeur must not be contrary to the objects of the company.
The Commission found that the transaction of purchase and resale wine matching of surplus cash investments, although it is not related to the operation as such the company, can be considered a related activity or incidental to its normal core business. By acquiring wines for resale, the company objectives and constraints similar to those of a wine merchant. The company plans to keep the wine acquired in the ordinary course of the ancillary activity in the same conditions as a wine merchant and sell them just as a wine merchant.
The Commission recalled that individualization default, the ownership of the acquired wine can not be transferred. The property will be transferred from the seller to the purchaser at the time when the wines are individualized. Moreover, it is only at this individualization that the risks pass to the merchant winemaker, unless otherwise stipulated. Accordingly, advance payments during the various primeur wines controls are to be recorded in debt to current assets in an account “Advances and prepayments on delivery obligations.” Then as soon as the company becomes the owner of wines, these are to be recognized in merchandise inventories to current assets. These en primeur wine trading operations therefore will impact the operating result at the shopping accounts, changes in inventories and sales.
Moreover, the commission says that detailed information on this accessory activity must be provided in the notes to the financial statements .
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