Losses on Purchase Commitments

Question 1

If there’s a loss on a purchase commitment under a contract that can be modified, what’s the accounting treatment?

Answer 1

-Disclosure in footnote as contingent liability

Question 2

If there’s a loss on a purchase commitment under a contract that cannot be modified, what’s the accounting treatment?

Answer 2

• Accrual as loss and liability on purchase commitment

- Inventory will be recorded at market value

Question 3

For recoveries on purchase loss commitments, can you record a gain?

Answer 3

-Yes but only to the extent of previously recognized loss