Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Carbs Ltd case A carbon emission trading scheme (ETS) was implemented, effective from 1 January 20X1. Participants must submit carbon allowances to the Government, based

Carbs Ltd case A carbon emission trading scheme (ETS) was implemented, effective from 1 January 20X1. Participants must submit carbon allowances to the Government, based on the amount of carbon dioxide (CO2) emitted during the year. A carbon allowance can be used for a period of up to two years from the date of issue. For example, a carbon allowance that was issued on 1 January 20X1 can be used to settle obligations arising from emissions generated during the two-year period ended 31 December 20X2. Obligations arising from emissions must be settled by the delivery of carbon allowances by 31 January of the following year. Participants initially receive allowances at no cost from the government. If an entity does not have enough allowances to settle its obligation, additional allowances may be purchased on the market. Excess allowances may be sold. The following information relates to Carbs Ltds involvement in the ETS: 1 January 20X1 Carbs Ltd receives 40,000 carbon allowances at no cost from the Government. Each allowance can be used to pay for emission of one tonne of CO2. The fair value of a carbon allowance was $20 at the time. 31 December 20X1 Carbs Ltd reported to the Government that it had emitted 25,000 tonnes of CO2 during the year. At that time, the fair value of an allowance was $30. Carbs Ltd accounts for its participation in the emission trading scheme in accordance with the principles of IFRIC 3 without revaluation of allowances held.

(b)b) Complete the following table (next page) showing the amounts that would be reported in the 20X1 financial statements of Carbs Ltd. i) applying IFRIC 3 without revaluation of allowances held. ii) if, alternatively, the cost of settlement is applied to both assets and liabilities arising from the emission trading scheme. This means that assets are measured at cost and that the liability is measured based on the carrying amount of the assets that would be surrendered or used up in settlement. Please do not leave cells blank. If there is no applicable account for an element (asset, liability, etc.) write not applicable or N/A. If the amount for a particular account is nil, write nil.

Which method provides more relevant information for users of financial statements? Give reasons for your answer drawing on the summary information provided in the answer to part b).

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

More Books

Students also viewed these Accounting questions