CMA Study Group

  • 1.  Purchase Commitment - Question

    Posted 4 days ago
    We usually record unrealized loss if noncancelable purchase commitment price is higher than current market price, what if the purchase commitment price is lower that market? is it allowed to record unrealized revenue?


    Thank you!

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    Noor Jarrar
    Student
    Amman
    Jordan
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  • 2.  RE: Purchase Commitment - Question

    Posted 3 days ago
    Hello Miss Noor Jarrar

    The gain is not accounted for. When accounting for purchases the goal is account for the economic resources reasonably expended. Say Timber is priced at $100 today and a non cancellable purchase order is made for it for puchase after 6 months. Immediately after the order is made the price of timber goes to $1000. This notional gain of $900 is not accounted for by the purchaser. The entry passed will be Timber or Inventory Dr 100 Accounts payable Cr 100. Hope this answers your query

    However it should be noted that purchase committments are not likely to be tested in the CMA examination



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    Shravan Ravi
    None
    Chennai TN
    India
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