June 2010 Wardle - in substance loan

I presume that this is a sale and repurchase situation where, for example, you sell whisky to the bank. If so, it's not a sale as such because the risks and rewards of ownership haven't really passed. At the end of three years you will have to buy the whisky back from the bank ( if they haven't drunk it all - but, hey, what a party! )

So for the three year period, if in fact you haven't sold it, then the whisky would still be in the inventory of the company and the money received from the "sale" is, in substance, a loan.

As for cost of sales not being in year 1, well I've just explained that the sale doesn't take place until we "buy" the whisky back and then sell it on the market. If you accept that the sale doesn't take place until year 3 then, under the matching concept, in which year should you be showing the cost of that year 3 sale?

You're welcome