A company has a contract to purchase one million units of gas at 0.23 per unit giving a contract price of CU 230 000 and the current market price for a similar contract is 0.16 per unit giving a price of CU160 000.

Give the appropriate accounting treatment in the following situations

1. The gas will be used in generating electricity and the electricity will be sold at a profit.

2. When the gas is used to generate electricity, the high costs of the gas means that the electricity is sold at a loss and the entity makes an overall operating loss. Assume that all the gas used by the entity to generate electricity is purchased under the contract.

3. There is a sales contract to sell the gas on to a third party as it is in excess of the entitys requirements. The sales contract is priced at 0.18 per unit. The entity would have to pay CU55 000 to exit the purchase contract.