Take or pay agreement

CFA Level I
#1

what is the effect of using Take or pay agreement on asset, debt and Return on Asset.

i just saw a question like this.they claim it will increase asset and increase debt.

#2

It’s a legal agreement to purchase an asset; to reflect that agreement you increase assets by the amount of the agreement, and increase liabilities by the same amount.

#3

Thanks but Is it an increase in debt or liabities…

#4

It increases liabilities.

I believe that it doesn’t increase debt as it is (probably) not interest-bearing; it’s more like accounts payable.