Blackcutt owns a warehouse. Chemco has leased the warehouse from Blackcutt and is using it as a storage facility for chemicals. The national government has announced its intention to enact environmental legislation requiring property owners to accept liability for environmental pollution. As a result, Blackcutt has introduced a hazardous chemical policy and has begun to apply the policy to its properties. Blackcutt has had a report that chemicals have contaminated the land surrounding the warehouse leased by Chemco. Blackcutt has no recourse against Chemco or its insurance company for the clean-up costs of the pollution. At 30 November 20X2, it is virtually certain that draft legislation requiring a clean-up of land already contaminated will be enacted shortly after the year end.

Required:

Discuss how the above event should be accounted for in the financial statements of Blackcutt.