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How should Oriole Ltd account for this purchase agreement

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Reference no: EM132575994

Question - On January 1st, 2020, Oriole Ltd. entered into a purchase commitment contract to buy 12,600 oranges from a local company at a price of $0.50 per orange anytime during the next year. The contract provides Oriole 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 haven't been delivered. As at January 31, 2020, Oriole Ltd. did not take delivery of any oranges, and the market price for an oranges was $0.45.

Assuming that Oriole Ltd. follows IFRS, how should Oriole Ltd. account for this purchase agreement if it fully intends to take delivery of all 12,600 oranges over the next year? Prepare journal entries at January 1 and 31 January.

Reference no: EM132575994

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