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Part of BPP ques 22,
“Gustoso Co purchases significant quantities of wheat on which Gustos Co records significant profit margins. The price of wheat is volatile and so, on 1 November 20X7, Gustoso Co entered into a contract with a supplier to purchase 500,000 bushels of wheat in June 20X8 for $5 a bushel. The contract can be settled net in cash. Gustoso Co has entered into similar contracts in the past and has always taken delivery of the wheat. By 31 December 20X7 the price of wheat had fallen. The finance director recorded a derivative liability of $0.5 million on the statement of financial position and a loss of $0.5 million in the statement of profit or loss. Wheat prices may rise again before June 20X8. The accountant is unsure if the current accounting treatment is correct but feels uncomfortable approaching the finance director again.”
The solution calls this an executory contract based on the previous pattern of the company to settle in commodity. However, there is an option to settle in net cash. Why cant we consider that and not hold a presumption?
I think scenario implies settlement by delivery of the commodity.
Bear in mind that all that matters is that you have the right knowledge, which you do. Different conclusions don’t matter so much.
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