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Gasnature is a public limited co involved in the production and trading of natural gas and oil.
Gasnature has entered into 10 yr contract with Agas for the purchase of natural gas. Gasnature has made an advance payment to Agas for an amt equal to the total quantity of gas contracted gor 10 yr which has been calculated using the forecasted price of gas. The advance carries interest of 6% per annum which is settled by way of the supply of extra gas. Fixed quantities of gas have to be supplied each month and there is a price adjustment mechanism in the contract whereby the difference between the forecasted price of gas n prevailing market price is settled in cash monthly. If Agas does not deliver gas as agreed , Gasnature has the right to claim compensation at current market price of gas.How does the contract qualify as ‘ own use’ ??
And why it is treated as Executory Contract??Contract to buy gas with settlement in cash = financial instrument = not the case here.
Contract to buy gas with settlement in gas = executory contact = not a financial instrument
So when they pay in advance for the gas, I would see it as a regular prepayment. If they hadn’t paid in advance, nothing is booked until the gas arrives.
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