Question
Petrocan Co. operates in the oil industry, contaminating land at a foreign location. The foreign country does not have environmental laws that will require Petrocan
Petrocan Co. operates in the oil industry, contaminating land at a foreign location. The foreign country does not have environmental laws that will require Petrocan Co. to clean up the contamination. However, Petrocan has a widely published policy to clean up all contamination that it causes, and it has a record of honoring this policy.
Requirements: The company applies the three criteria of IAS 37 to determine whether recognition of a provision is appropriate.
1. ... Is the criterion 1, "present obligation as a result of a past obligating event," met? How? Or how not?
2. Is the criterion 2, "an outflow of reseources embodying economic benefits in settlement is probable," met? How? Or how not?
3. Determine whether Petrocan Co. should recognize a provision, if it cannot make a reliable estimate of the costs of clean-up. Yes. ____ or No. _____. If yes, describe the recognition for what amount and in which financial schedule[s]. If not, what specific accounting treatment should Petrocan Co. do?
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