[GNC] When income is not income

[Michael or Penny Novack]

> But (and this is where I am uncertain about annuities), I'm not sure there
> is any point in doing this for an annuity... You actually don't own it any
> longer... they just have to pay you a monthly income, regardless of whether
> it gains or loses money.

The IT that you own is a contractual right, the right for you(*) to 
receive "rents" (periodic payments) until some conditional event has 
occurred. That RIGHT is an asset.

On this list so far there has been little discussion of contractual 
rights as assets. If there had been, we would be more familiar with 
accounting of conditional assets But we do have folks trading in 
securities, so I'll give an example from there, a stock OPTION. These 
might be part of somebody's compensation package or might be bought 
(there is a market in options). We'll take an example of the latter.

Let's say you buy an option where that is a contractual right to buy X 
shares of QRS at Y per share un the next 180 days. At the moment QRS is 
selling for less than Y per share, so in that sense, immediate value of 
this right is zero. But you would enter this asset in your books at what 
you paid for it. Understand? Bought as a "bet" that at some time before 
the option lapses the price of QRS will go above Y at which point the 
option can be profitably exercised (or sold, might become worth more 
than what paid for even before the share price is above Y). If exercised 
or sold, the transaction will zero out the asset too. But maybe the !80 
days elapse first. Then the option "evaporates" and you clear the asset 
by debiting "option trading losses".

Aren't there commodities traders here? What is being bought/sold is not 
directly the commodity itself but the right to receive delivery (at some 
specified time/place). Or to have it taken off your hands at that 
time/place. << normally, at the end, no transfers of the commodity take 
place but contracts to accept and contracts to deliver cancelled out 
*>>. And not necessarily commodity traders but people actually 
buying/selling the commodity hedging the future price. Like a farmer 
expecting to be selling 100,000 bu of wheat after harvest wanting to 
lock in the price.

Michael D Novack

* It was a while back, but law suits when a major real commodities 
conglomerate on the wrong side of contracts for crude oil said "we'll 
take delivery" because they analyzed how many tankers could possibly 
reach the specified port and saw far less crude than they would 
otherwise be forced to buy at the above market price. Disallowed, 
contracts issued to be cancelled and often contracts issued far in 
excess of the physical commodity.