Energy: Soil Contamination and Asc Essay

Submitted By sapphiregogo
Words: 1198
Pages: 5

ISSUE: Accounting for Energy Inc.’s environmental obligations, income tax and install smoke filters.

BRIEF BACKGROUND OF COMPANY

Energy Inc. (Energy) is a public company that operates in the oil industry. As of December 31, 2011, Energy recognized $ billion in revenue for the sale. Sometimes, Energy’s operations result in soil contamination and Energy should clean up this contamination when legislation requiring under the laws of the particular country. In addition, Energy has a widely published environmental policy in which it undertakes clean up all contamination that it causes. Energy is currently involved in environmental obligations, such as clean up the lands.

ACCOUNTING QUESTIONS

1. Does Energy recognizes and accrues the liability of clean up costs in this year? What is the accounting treatment?
2. Is Energy has the obligations to undertake soil remediation in Dirty country? What is the accounting treatment for this operation in Dirty country?
3. What is the accounting treatment for new income tax? What is the accounting treatment for training employees?
4. Does Energy have obligations to install smoke filters this year? What is the accounting treatment for installing smoke filters in Energy’s factories next year?

SUMMARY CONCLUSION ON ACCOUNTING QUESTIONS

1. Energy should recognize and accrue the liability of clean up lands in this year. Energy should charge clean up costs to expenses.
2. Energy has no obligations to undertake the soil remediation in Dirty country.
3. Energy should recognize the retraining costs to compensation expenses.
4. Energy should recognize install smoke filters to expense.

AUTHORITATIVE AND INTERPRETIVE GUIDANCE CONSIDERED

Refer to ASC 410-20-25-1 (Background for recognition)
Refer to ASC 450-20-25-2 (Background for recognition)
Refer to ASC 410-30-05-2 (Overview and Background for environmental obligations)
Refer to ASC 410-30-05-3 (Overview and Background for environmental obligations)
Refer to ASC 410-30-25-1 (Overall approach for recognition of environmental obligations)
Refer to ASC 410-30-25-2 (Overall approach for recognition of environmental obligations)
Refer to ASC 410-30-25-4 (Probability that a liability has been incurred)
Refer to ASC 410-30-25-16 (Criteria to capitalize environmental treatment costs)
Refer to ASC 410-30-25-17 (Criteria to capitalize environmental treatment costs)
Refer to ASC 410-30-25-18 (Criteria to capitalize environmental treatment costs)
Refer to ASC 932-740 (Income taxes under extractive activities – Oil and Gas)
Refer to ASC 712-10-05-5 (Other postemployment benefits)
Refer to ASC 932-360-25-6 (Accounting at the time costs are incurred)
Refer to ASC 932-720-25-1 (Recognition of other expenses under extractive activities – Oil and Gas)
Refer to ASC 932-235-50-25 (Disclose income taxes of notes to financial statements)

DETAILED DISCUSSION, ANALYSIS, EVALUATION OF ALTERNATIVES & REASONS FOR CONCLUSION

QUESTION 1

Step 1: Dose the Energy recognizes and accrues the liability of clean up costs in this year?
According to ASC 410-30-05-2, Energy must evaluate the current laws, rules, and regulations to determine whether they have obligations or not. Energy may have no obligations to clean up lands in this year because the draft law will be enacted after the year-end. However, ASC 410-20-25-1 requires the accrual of a liability if both of the conditions are met; a. Information available before the financial statements are issued or are available to be issued indicates that it is probable that an asset has been impaired or a liability has been incurred at the date of the financial statements; b. The amount of the loss can be reasonably estimated. Therefore, Energy should recognize the liability of clean up lands in this year.

Additional information, ASC 410-30-25-2 and ASC 410-30-25-4 states that environmental remediation liabilities, the probability criterion consists of two elements; the criterion