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    Step-By-Step Explanation

    Uploaded by

    Dave Iverson Soriano
    Bautista Airways entered into a non-cancelable commitment in November 2018 to purchase 3,000 barrels of aviation fuel in March 2019 for ₱9,000,000. This was to protect against volatility in fuel prices. By December 2018, fuel prices had fallen to ₱2,200 per barrel, resulting in an unrealized loss of ₱66,000,000 on the commitment. However, by the delivery date in March 2019 when fuel prices had risen to ₱3,100 per barrel, Bautista realized a gain of ₱63,000,000 on fulfilling the commitment.

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    Step-By-Step Explanation

    Uploaded by

    Dave Iverson Soriano
    194 views1 page
    Bautista Airways entered into a non-cancelable commitment in November 2018 to purchase 3,000 barrels of aviation fuel in March 2019 for ₱9,000,000. This was to protect against volatility in fuel prices. By December 2018, fuel prices had fallen to ₱2,200 per barrel, resulting in an unrealized loss of ₱66,000,000 on the commitment. However, by the delivery date in March 2019 when fuel prices had risen to ₱3,100 per barrel, Bautista realized a gain of ₱63,000,000 on fulfilling the commitment.

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    Bautista Airways entered into a non-cancelable commitment in November 2018 to purchase 3,000 barrels of aviation fuel in March 2019 for ₱9,000,000. This was to protect against volatility in fuel prices. By December 2018, fuel prices had fallen to ₱2,200 per barrel, resulting in an unrealized loss of ₱66,000,000 on the commitment. However, by the delivery date in March 2019 when fuel prices had risen to ₱3,100 per barrel, Bautista realized a gain of ₱63,000,000 on fulfilling the commitment.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    194 views1 page

    Step-By-Step Explanation

    Uploaded by

    Dave Iverson Soriano
    Bautista Airways entered into a non-cancelable commitment in November 2018 to purchase 3,000 barrels of aviation fuel in March 2019 for ₱9,000,000. This was to protect against volatility in fuel prices. By December 2018, fuel prices had fallen to ₱2,200 per barrel, resulting in an unrealized loss of ₱66,000,000 on the commitment. However, by the delivery date in March 2019 when fuel prices had risen to ₱3,100 per barrel, Bautista realized a gain of ₱63,000,000 on fulfilling the commitment.

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    Question

    Problem 1: On November 17, 2018, Bautista Airways entered into a non-cancelable


    commitment to purchase 3,000 barrels of aviation fuel for ₱9,000,000 on March 31, 2019.
    Bautista entered into this purchase commitment to protect itself against the volatility in the
    aviation fuel market. By December 31, 2018, the purchase price of aviation fuel had fallen to
    ₱2,200 per barrel. However, by March 31, 2019, when Bautista took delivery of the 3,000
    barrels, the price of aviation fuel had risen to ₱3,100 per barrel.

    _________1. What is the loss/gain on purchase commitment on December 31, 2018.


    _________2. What is the gain/loss on purchase commitment on March 31, 2019.

    Answered by Expert Tutors


    1 . Loss of 66,00,000
    2 . Gain of 63,00,0000
    Step-by-step explanation
    Contract price per barrel 90,00,000/3000 = 3000 per barrel
    Actual price as on 31/Dec per barrel = 5200 per barrel
    Notional loss 2200*3000 barrel = 66,00,000 loss
    Carrying price at 31/Dec 1,56,00,000
    Actual price as on 31/March per barrel = 3100 per barrel
    Notional gain per barrel = 5200 - 3100
    = 2100 per barrel
    Total gain 2100*3000 barrel = 63,00,000 gain

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