At December 31 2014 Ichor Ltd has outstanding non cancellable purchase
At December 31, 2014, Ichor Ltd. has outstanding non-cancellable purchase commitments for 45,500 litres of raw material at S3.25 per litre. The material will be used in Ichor's manufacturing process, and the company prices its raw materials inventory at cost or :NRV, whichever is lower.
Instructions
(a) Explain the accounting treatment for purchase commitments under ASPE and IFRS.
(b) Assuming that the market price as at December 31, 2014, is $3.55 per litre, how would this commitment be treated in the accounts and statements? Explain.
(c) Assuming that the market price as at December 31, 2014, is $2.60 per litre instead of $3.55, how would you treat this commitment in the accounts and statements?
(d) Prepare the entry for January 15, 2015, when the entire shipment is received, assuming that the situation in (c) existed at December 31, 2014, and that the market price in January 2015 is $2 .60 per litre. Explain your treatment.
(e) Why would users of the financial statements want to see disclosure about purchase commitments? Is it ever ethical for a company to decide not to disclose this information?
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