Question: On November 15, 2008, Socrates entered in to a commitment to purchase 200,000 units of raw material X for P8,000,000 on March 15, 2009.

On November 15, 2008, Socrates entered in to a commitment to purchase 200,000 units of raw material X for P8,000,000 on March 15, 2009. Socrates entered into this purchase commitment to protect itself against the volatility in the price of raw material X. By December 31, 2008, the purchase price of material X had fallen to P35 per unit. However, by March 15, 2009, when Socrates took delivery of the 200,000 units, the price of the material had risen to P42 per unit. How much will be recognized as gain on purchase commitment on March 15, 2009?

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