Exercise 8-7

At December 31, 2017, Ayayai Ltd. has outstanding non-cancellable purchase commitments for 35,000 litres of raw material at $2.00 per litre. The material will be used in Ayayai's manufacturing process, and the company prices its raw materials inventory at cost or NRV, whichever is lower.

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Assuming that the market price as at December 31, 2017, is $1.60 per litre instead of $2.00, how would you treat this commitment in the accounts and statements

Prepare the entry for January 15, 2018, when the entire shipment is received, assuming that the situation in above part existed at December 31, 2017, and that the market price in January 2018 is $1.60 per litre