Final answer:
True The buyer should record expected losses from a noncancelable purchase commitment when the market price falls below the contract price, reflecting the losses immediately as per accounting principles.
Step-by-step explanation:
If the contract price on a noncancelable purchase commitment exceeds the market price, the buyer should record any expected losses on the commitment in the period in which the market decline takes place.
Accounting principles require that losses be recorded when they are expected and reasonable to estimate, rather than when the actual purchase takes place.
This means that if market conditions show a decline in prices, the buyer needs to recognize the loss in the period that the market price falls below the contract price to reflect the economic reality accurately.
This practice aligns with the principle of conservatism in accounting, which states that potential future losses should be recognized immediately, but gains should only be recorded when they are realized.
Inflation-adjusted contracts provide a real price for the transaction rather than a nominal price, which helps both buyers and sellers avoid being locked into unfavorable prices if inflation diverges from expectations.