On November 17, 2020, GGG Airways entered in to a commitment to purchase 3,000 barrels of aviation fuel for P9,000,000 on March 23, 2021. GGG entered into this purchase commitment to protect itself against the volatility in the aviation fuel market. By December 31, 2020, the purchase price of aviation fuel had fallen to P2,200 per barrel. However, by March 23, 2021, when GGG took delivery of the 3,000 barrels, the price of aviation fuel had risen to P2,500 per barrel. How much should be recognized as loss on purchase commitment on December 31, 2020?
On November 17, 2020, GGG Airways entered in to a commitment to purchase 3,000 barrels of aviation fuel for P9,000,000 on March 23, 2021. GGG entered into this purchase commitment to protect itself against the volatility in the aviation fuel market. By December 31, 2020, the purchase price of aviation fuel had fallen to P2,200 per barrel. However, by March 23, 2021, when GGG took delivery of the 3,000 barrels, the price of aviation fuel had risen to P2,500 per barrel. How much should be recognized as loss on purchase commitment on December 31, 2020?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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51.On November 17, 2020, GGG Airways entered in to a commitment to purchase 3,000 barrels of aviation fuel for P9,000,000 on March 23, 2021. GGG entered into this purchase commitment to protect itself against the volatility in the aviation fuel market. By December 31, 2020, the purchase price of aviation fuel had fallen to P2,200 per barrel. However, by March 23, 2021, when GGG took delivery of the 3,000 barrels, the price of aviation fuel had risen to P2,500 per barrel.
- How much should be recognized as loss on purchase commitment on December 31, 2020?
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