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1. In the question, it is written that contract to purchase oil are treated as non current assest
This treatment is marked correct in answer.
My concern is that this purchase of oil is for selling in the normal course of business and this appears to be the primary activity of the company as company is operating in energy sector so shouldn’t it be treated as inventories under IAS 2?
2. Please explain the meaning of the line the contracts always result in the delivery of the commodity so its not financial instrument.
3. In lease part
Its written that in the event of one of electrons power station being unable to produce energy, electron can terminate contract.So in perspective of lessee this should have not met the criteria of identified assest?
So how lease agreement then?Thanks
1. I think we have bought a ‘right to buy oil’ as opposed to ‘oil’ – I would think of it as a licence – so intangible.
2.Financial instruments = settled in cash – this is not settled in cash…….it’s settled in oil.
3. Electron is lessor not lessee – so it’s an operating leaseAlso, because leases have changed significantly in the 14 years since this question was written, I wouldn’t bother with the leasing part too much
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