On January 1, 2011, Fresh Juice Ltd. entered into a purchase commitment contract to buy 10,000 oranges from a local company at a price of $0.50 per orange anytime during the next year. The contract provides Fresh Juice with the option either to take delivery of the oranges at any time over the next year, or to settle the contract on a net basis for the difference between the agreed upon price of $0.50 per orange and the market price per orange for any oranges that have not been delivered. As at January 31, 2011, Fresh Juice Ltd. did not take delivery of any oranges, and the market price for an orange was $0.49.
Instructions
(a) Assuming that IFRS are adopted, how should Fresh Juice Ltd. account for this purchase agreement if it fully intends to take delivery of all 10,000 oranges over the next year? Provide any required journal entries at January 1 and January 31.
(b) How would your answer to part (a) change if Fresh Juice Ltd. did not intend to take delivery of the oranges? Provide any required journal entries at January 1 and January 31.
(c) Assuming that ASPE is adopted, how would Fresh Juice Ltd. account for this purchase agreement if it fully intends to take delivery of all 10,000 oranges over the next year?