Highland Malt: Accounting Policy Choices in Financial Statements

In early 2020, a recent graduate from a prestigious masters of business administration program was working as a financial accountant for a renowned private equity firm in Glasgow, Scotland. For her father’s retirement, she was considering a gift from Highland Malt Inc.. The company’s Scotch whisky was offered in a limited quantity and promoted as an investment opportunity. Unlike ordinary bottled whiskies, Highland Malt Inc. sold this new line solely by the barrel. Collectors had to pay the full amount of CA$10,000 upfront, but could request a full refund within 180 days if unsatisfied with the product. The refund period allowed the collector to visit the distillery and inspect the purchase to ensure it met all expectations. The accountant was wondering if she should proceed with her plan to buy a barrel of Highland whisky as an investment and collector’s item for her father.

This case can be used in early financial accounting courses at the undergraduate or graduate level. For most classes, this case should be introduced after students attain a basic understanding of Generally Accepted Accounting Principles (GAAP), and are comfortable with some basic concepts of accounting. However, this case is equally effective in introducing concepts to students who are new to accounting and transactions reporting. The case provides an opportunity for students to analyze accounting policy choices and discusses the opening of a new distillery business. It introduces students to a high-level understanding of fundamental transactions and how they are recorded in the company’s ledgers. After completion of this case, students will be able to<ul><li>make accounting policy choices and prepare basic financial statements under the various scenarios;</li><li>understand revenue recognition, capitalization of costs, and inventory valuation using cost-flow assumptions such as first in, first out and last in, first out methods; and</li><li>understand provision for returns, accounts receivable, and transfer of risk.</li></ul>

• accounting policy choices, revenue, cost