Net losses on firm purchase commitments to acquire goods for inventory result from a contract price that exceeds the current market price. If a firm expects that losses will occur when the purchase occurs, expected losses, if material,

Answer (A) is correct. A loss is accrued in the income statement on goods subject to a firm purchase commitment if the market price of these goods declines below the commitment price. This loss should be measured in the same manner as inventory losses. Disclosure of the loss is also required