Landfill Limited (LL) is a private company that collects and disposes of household garbage. Waste is collected and trucked to local disposal sites where it is dumped and then covered with topsoil. The disposal sites are owned by LL and were financed by debt from Bank Inc. at an average interest rate of 5%.

LL has several disposal sites that will be filled with garbage and later sold as industrial land. LL estimates that the sites will take 20 years on average to fill up. Varying amounts of garbage will be dumped each year. Salvage values are not known at the time although land normally holds its value unless toxic chemicals are found.

Government regulations require that the company perform capping, closure, and post-closure activities. Capping involves covering the land with topsoil and planting vegetation. Closure activities include drainage, engineering, and demolition. Post-closure activities include maintaining the landfill once the government has given final certification.

They also include monitoring the ground and surface water, gas emissions, and air quality. If the land is sold, the purchaser reduces the acquisition cost by an estimate of this cost. LL must also guarantee that the land is toxin free and if it is later found to contain toxins, LL will pay for cleanup.

In the past year, one of these landfill sites was sold. However, the company recently received notification from the purchaser's lawyers that high levels of toxins had been found leaking into the water table.

Obtaining new contracts, as well as keeping old ones, depends on many factors. These include competitive bidding, the company's profile in the community, its past work performance, its financial stability, and having a history of adhering strictly to environmental standards. Financial statements are therefore relevant in the process of obtaining new contracts as they are examined by those who award them.

Instructions

Adopt the role of the company auditor and discuss the financial reporting issues. Landfill Limited is one of your new audit clients this year. The client is interested in how these issues would be accounted for under both ASPE and IFRS.