Al Fahd Corporation is the producer of fertilizers and sells the products within the Sultanate of Oman. The management of the corporation took a decision about the export of some of the variety of fertilizers to European countries as a process expansion of market The Corporation wishes to conduct an environmental audit from time to time in this regard and approximate cost for this purpose was OMR 198,000. If the company wishes to export then such process must comply with the international environmental requirements. So, the audit wishes to comprehend the following:

All environmental policy has to be fully reviewed.

A detailed analysis of amenability has to be made with the directives.

In order to meet the international environmental requirements, the detailed report has to be prepared

containing those physical and policy changes.

According to financial analyst of Al Fahd Corporation, the audit cost of OMR 198,000 has to be capitalized as an asset and further, it has to be written off against the export revenue generated in order to follow the matching principle of income.

Required:

a) Do you agree with the decision taken by Al Fahd Corporations financial analyst about capitalization of an

asset and written off against revenue from exports?

b) Provide your justification on how matching principle is applicable in this case?

c) Also, analyze the factors that are influencing on recognition of environmental audit cost.