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.
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