XYZ Ltd participates in a cap and trade scheme in which allowances are traded in an active market. The scheme issues allowances for which the relevant compliance period is one year from the date of issue. Obligations arising from emissions for each year ended 30 June are settled on the 1 August (i.e., 32 days later). The allowances expire after two years. On 1 July, 20X8 the government issues to XYZ Ltd allowances for 14,500 tonnes of carbon dioxide. These allowances were issued at no cost. During the year ended 30 June 20X9, XYZ Ltd produces emissions in the course of making inventories, all of which are sold in the same period.

Fair value of emission trading allowances (per tonne):

1 July 20X8 $4.50 30

June 20X9 $4.77

1 August 20X9 $4.77

30 June 20Y0 $5.00

Please ignore taxes in answering this question.

Required: (a) Prepare the journal entry, if any, in the books of XYZ Ltd to account for the receipt of the emission allowances in accordance with IFRIC 3.

(b) Explain the effects on XYZs financial statements of the accounting requirements of IFRIC 3 for the emission allowances: i) on 1 July 20X8 ii) subsequent to initial recognition

(c) Assume that for the year ended 30 June 20X9 actual emissions are 10,000 tonnes. XYZ Ltd follows IFRIC 3 and elects not to revalue the emission allowances. Prepare all journal entries to account for the emissions for that year and emission trading allowances at 30 June 20X9.

(d) Prepare the journal entry for settlement of the emission liability on 1 August 20X9.

(e) Emissions for the year ended 30 June 20Y0 (which is the year after 20X9) were also 10,000 tonnes. XYZ Ltd follows IFRIC 3 and, from 30 June 20Y0, elects to revalue the emission allowances. Prepare all journal entries to account for the emissions for that year and emission trading allowances at 30 June 20Y0.