Premium Essay

Polluter

In: Business and Management

Submitted By noaishte
Words 2793
Pages 12
MEMORANDUM

Polluter Corp operates three manufacturing facilities in which various household cleaning products are manufactured and sold to retail stores. Polluter has a certain emission allowances for each year that are classified as intangible assets. Because it anticipates a need for additional emission allowances for the years 2010 – 2014, it purchased $3 million in emissions credits from Clean Air Corp. on April 2, 2010. A complete renovation of its facilities will be completed by 2014, at which point in time Polluter expects to have additional emission allowance that it does not need. Therefore, to offset the cost of having to purchase emissions credits until the renovations are complete, Polluter sold $2 million worth of future emissions credits to Dirty Chemical Corp. The question of how to account for these transactions in the statement of cash flows has been raised. This memo discusses and evaluates the relevant options.

Definitions

Accounting Standards Codification 230-10 Statement of Cash Flows

230-10-20 Glossary

Financing Activities
Financing activities include obtaining resources from owners and providing them with a return on, and a return of, their investment; receiving restricted resources that by donor stipulation must be used for long-term purposes; borrowing money and repaying amounts borrowed, or otherwise settling the obligation; and obtaining and paying for other resources obtained from creditors on long-term credit.

Investing Activities
Investing activities include making and collecting loans and acquiring and disposing of debt or equity instruments and property, plant, and equipment and other productive assets, that is, assets held for or used in the production of goods or services by the entity (other than materials that are part of the entity's inventory).

Operating Activities
Operating activities include all…...

Similar Documents

Premium Essay

Emissions

...best and why. In regards to the information given in the Polluter case, there are several ways the company can classify the $3 million purchase of emission allowances (“EAs”) from Clean Air Corp. First, it is important to understand the Polluter’s intention for the EAs and nature of their ‘business.’ In order to understand what are the “feasible alternative classifications in the statement of cash flows” for the $3 million purchase, Polluter will determine what type of asset they will classify the EAs as on their balance sheet. Following are three alternatives Polluter can consider as outlined in Deloitte’s “Accounting for Emission Rights” paper: 1. The EAs are intangible assets as defined under SFAS No. 142, Goodwill and Other Intangible Assets, because they lack physical substance but do not meet the definition of a financial asset under SFAS 140. 2. EAs are listed as financial assets because markets and exchanges for the trading of EAs provided evidence that they qualified as financial assets as the allowances would be readily convertible to cash. 3. An alternative view is that they are listed as inventory, as they are part of the necessary costs to comply with environmental regulations and emissions reduction schemes. Polluter currently has significantly high levels of greenhouse gas pollution, which are emitted throughout their normal course of business operations. As stated in the case, Polluter purchased the EAs from Clean Air in April of 2010 to......

Words: 437 - Pages: 2

Premium Essay

Polluter Corp. Emission Allowance

...Background: An emission allowance is an authorization by a permitting authority or the Environmental Protection Agency Administrator to emit a specified amount of pollutant during a specified period of time. (http://www.ferc.gov/help/faqs/form-580.asp#question4) Case Summary: Polluter Corp. is a company features in manufacturing household cleaning products. The government allocated the emission allowances (EAs) for each year. According to the Federal Energy Regulatory Commission accounting guidance for EAs, the EAs is recorded as intangible asssets. The Polluter Corp. is going to upgrade its facilities in 2014 in order to decrease the amount of greenhouse gas emitted. However, the corporation still needs additional EAs before upgrades. Hence, the Company spent $3 million to purchase EAs with a vintage year of 2012 from Clean Air Corp. In order to compensate the cost, the Corp sold EAs worthy of $2 million with the vintage year of 2016 to Dirty Chemical Corp. We need to analyze the classification of the statement of cash flows for these two transactions. In addition, we need to differentiate the method of recording these two transactions according to IFRS and U.S. GAAP. Case Analysis: In terms of classification, emission allowances satisfy the definition of an intangible asset. Specifically, they are assets (not including financial assets) that lack physical substance. [FASB, Appendix F, Glossary to SFAS 142, Goodwill and Other Intangible Assets]. Although they......

Words: 681 - Pages: 3

Premium Essay

Polluter

...A. i. Section 320-10-25-1 of the Accounting Standards Codification defines Trading Securities as follows, “If a security is acquired with the intent of selling it within hours or days, the security shall be classified as trading. However, at acquisition an entity is not precluded from classifying as trading a security it plans to hold for a longer period. Classification of a security as trading shall not be precluded simply because the entity does not intend to sell it in the near term.” ii. Dividends and interest received from trading securities should be included in earnings according to Section 320-10-35-4. The company can record the Dividend or Interest Revenue as follows, Journal Entry: Cash $1 Dividend/Interest Revenue $1 iii. The company would record the increase in market value using the fair value method as follows, Journal Entry: Fair Value Adjustment (trading) $1 Unrealized holding gain $1 B. i. According to 320-10-25-1, available- for-sale is “Investments in debt securities and equity securities that have readily determinable fair values not classified as trading securities or as held-to-maturity securities shall be classified as available-for-sale securities.” ii. According to 320-10-35-4 “Dividend and interest income,......

Words: 785 - Pages: 4

Premium Essay

Poll Corp

...Conclusion A clear and concise paragraph informing the reader of the conclusion reached. Assignment #4: Financial accounting research memo Use the FASB Codification to research the issues in the “Polluter Corp.” case. Only complete requirements #1 and #2. You will NOT be conducting IFRS research (requirement #3) for this assignment. This is an individual assignment. Prepare a research memorandum following the format and example discussed in class. Please note a general format for research memos is also posted in the Lectures folder in Blackboard. Remember to upload a copy of your completed assignment through Blackboard and bring a hard copy to class as well. If you have any questions while completing the assignment, please call, email, or visit Dr. Ford. Copyright 2010 Deloitte Development LLC All Rights Reserved. (FY11) A few comments about the research assignment due on Monday: * Vintage year means the first year the allowance may be used * I suggest skimming chapter 23 of your Intermediate textbook, paying careful attention to the definitions of operating, investing, and financing activities * You will not find specific guidance on EAs in the Codification. Instead, focus on what defines each of the three classifications. Case 2 Polluter Corp. Polluter Corp. (the “Company”), an SEC registrant, operates three manufacturing facilities in the United States. The Company manufactures various household cleaning products at each facility, which are......

Words: 1455 - Pages: 6

Free Essay

Public Policy

...It was written December 2005 so therefore I feel as though it’s pretty relevant to today’s market structure. It was submitted to a French, scientific journal and translated into English. My article review will be a summary of the ideas and points of the article. Arthur Pigou conducted a classical analysis of market failure and concluded that negative externalities caused by pollution would be internalized by the market it the polluters were to pay the tax equal to the marginal social cost of the pollution. This idea was derived under the condition of perfect competition. This study was then amended by Buchanan (1969) and Barnett (1980) for an imperfectly competitive market. They found that the tax should be lower than the marginal social cost of pollution because it is a trade off from the desire to provide abatement incentives and the necessity of preventing a larger reduction of output. The article showed that taxes targeting polluting emissions must adjust to the relative market power of environmental firms (on the abatement market) and polluters (on both the final good and the abatement markets). All things equal, there would be a relatively more concentrated and powerful eco-industry that warrants higher emission taxes. The impact of more complex and realistic industry conditions, or privately informed and different environment firms, for example – on Pigouvian taxes and environmental regulation in general remains to be explored. Works Cited: Nimubona,......

Words: 303 - Pages: 2

Premium Essay

Polluter Corp. Case

...Polluter Corp. Case Study Polluter Corporation is a manufacturing firm in the United States registered with the Securities and Exchange Commission. Polluter Corp. operates three facilities manufacturing various household cleaning products. These products produced are sold to retail customers. The United States government funded their company with emission allowances (EAs). An emission allowance is an authorization to emit a fixed amount of a pollutant. An emissions allowance is sometimes also referred to as a permit. An allowance is a fully marketable commodity that may be bought, sold, or traded for use by entities covered by the program. The government granted those EAs with varying vintage years which is the number of years the allowance may be used. Polluter Corp. EAs were to be used between 2010 and 2030 which is substantial time. Once the company received their receipt they record the EAs as intangible assets with a cost basis of zero, in accordance with The Federal Energy Regulatory Commission (FERC). FERC is accounting guidance for EAs so companies understand rules and regulations associated with the allowance. Governing bodies generally issue rights to help control or reduce the emission of pollutants and greenhouse gases. They also allow entities to emit a specified level of pollutants. EAs individually have vintage year designation, but EAs with the same vintage year destination are replaceable and can be replaced by another identical......

Words: 806 - Pages: 4

Premium Essay

Polluter Case

...Memorandum To: From: Date: Subject: Case 11-1 Polluter Corp. Statement of Relevant Facts Polluter Corporation, an SEC registrant, operates three manufacturing plants in the United States. The Company manufactures various household cleaning products at each facility, which are sold to retail customers. The U.S. government granted the Company emission allowances (“EAs”) of varying vintage years (i.e., the years in which the allowance may be used) to be used between 2010 and 2030. Upon receipt of the EAs, the Company recorded the EA’s as intangible assets with a cost basis of zero. The Company currently emits a significant amount of greenhouse gases because of its antiquated manufacturing facilities. The Company plans to upgrade its facilities in 2014, which will decrease greenhouse gas emissions to a very low level. On the basis of the timing of the upgrade, the Company currently anticipates a need for additional EAs in fiscal years 2010–2014. However, upon completion of the upgrade, the Company believes it will have excess EAs in fiscal years subsequent to 2014 because of reduced emissions as a result of the upgrade. The Company entered into the following two separate transactions in fiscal year 2010, which will impact the Company’s results as presented in the statement of cash flows: 1. To meet its need for additional EAs in fiscal years 2010–2014, on April 2, 2010, the Company spent $3 million to purchase EAs with a vintage year of 2012 from Clean Air Corp. ...

Words: 1229 - Pages: 5

Premium Essay

Cash Flow Poluuter Corp

...José A Valdés 3 de octubre de 2013 Sem. De Contabilidad Prof. Alejandro Méndez Case 11-1 Polluter Corp Facts of Case: Polluter Corp is an SEC registrant and manufacturer household cleaning products. In the course of operations, Polluter Corp emits emission pollutants; The Company receives emissions allowances, (EAs,) from the government for 2010 to 2030. Polluter Corp will upgrade their production facilities in 2014 in order to reduce their pollutants. Emissions Allowance are given by the government in order to offset pollution expense, with the goal being to reduce pollution 2010 Transactions After 2014, Polluter will emit less pollution, but until then it will need more EAs in order to avoid penalties. Transactions Fiscal Year 2010 After 2014, Polluter Corp will emit less pollution, but until then it will need more EA’s in order to avoid penalties, Polluter buys extra EA’s for 2012 from Clear Air Corp for $3 million. In an effort to offset the cost of the April 2, 2010 purchase of 2012 Eas, the company sold Eas with a vintage year of 2016 to Dirty Chemical Corp for $2 million. Answer Required: 1. What is the appropriate classification in the statement of cash flows in the company’s December 31, 2010, financial statements for its purchase of 2012 EAs from Clean Air Corp ? According to the FASB codification section 805-50-3-1-2, these allowance will be recognized as intangible assets at their cost. When a......

Words: 1262 - Pages: 6

Premium Essay

Pollutor Corp

...POLLUTER CORP. Polluter Corp is a leading household cleaning products manufacturing company based in the United States. The Company operates three manufacturing facilities as an SEC registrant. Company emission allowances of vintage years are granted by U.S government to be used 2010 and 2030. According to the Federal Energy Regulatory Commission, Polluter Corp. recorded EAs as intangible assets with a zero cost basis when government issued EAs to company and has a fiscal year end of December 31. Government has special guidance to control or reduce the emission of pollutants and greenhouse gases to participating companies. These are explained as follow; companies have a specified level of pollutants to emit EAs. EAs with same vintage year designation are exchangeable or replaceable by any companies to reduce pollution. That means company can buy EAs from other companies when it needs EAs or sell excess its EAS to other companies who need to satisfy pollution control obligation through a broker. According to EAs regulation, company is required to deliver to the governing bodies EAs sufficient to offset the company’s actual emission or pay a fine for overage of EAs. Currently, Polluter has facing a significant increase in emission due to its old manufacturing facilities and forecasted a need for EAs in fiscal year 2010-2014. In order to reduce green house gas emission to a significant low level, company plans to upgrade its facilities in 2014 and it will cost $15 millions.......

Words: 872 - Pages: 4

Premium Essay

Case 11 1 Polluter Corp

... integrated   into  the  conclusion;   leaves  some  work  to   the  reader;  offers   some  unsupported   conclusions   Analysis  is  superficial;   treats  some  issues  as   “given”  when  a   challenging  analysis  is   required;  arguments   are  not  well   supported;  arguments   are  one-­‐sided  and  do   not  address   alternatives   Some  conclusions   follow  from  the   analysis,  but  not   clearly;  conclusions   are  “hedged”  with  new   issues  or  alternatives   not  previously   discussed   Total   50   Case 11-1 Polluter Corp. Polluter Corp. (the “Company”), an SEC registrant, operates three manufacturing facilities in the United States. The Company manufactures various household cleaning products at each facility, which are sold to retail customers. The U.S. government granted the Company emission allowances (“EAs”) of varying vintage years (i.e., the years in which the allowance may be used) to be used between 2010 and 2030. Upon receipt of the EAs, the Company recorded the EAs as intangible assets with a cost basis of zero, in accordance with The Federal Energy Regulatory Commission (“FERC”) accounting guidance for EAs. The Company has a fiscal year end of December 31. As background, in an effort to control or reduce the emission of pollutants and......

Words: 1306 - Pages: 6

Premium Essay

Worksheet #2 Module Review

...sources of pollution rather than ambient levels of pollutants. In contrast, the Clean Air Act regulates ambient air quality by requiring states to meet standards set by the National Ambient Air Quality Standards. 5. Define and explain the difference between ambient, performance, and technology standards. * What does each type of standard specify? Ambient standards: sets an ambient quality goal without prescribing how to achieve it Performance: sets a standard for emissions of pollutants for a source Technology standard: requires implementation of certain technology to mitigate emissions * Under what circumstances would a polluter prefer performance to technology standards? A polluter would prefer performance to technology standards as a small firm, as it would be easier to be cost effective, and larger firms/polluters would prefer performance standards as it easier for them to understand their costs and choose the most effective way to reduce emissions. * From a regulatory perspective, what are the benefits and drawbacks of each? 6. Describe how implementation of the Clean Air Act reflects the fact that the USA has a federal system of government. [Hint: see Module 1 definition of federalism]. The Clean Air Act is based on federal standards that must be implemented by the states through SIPs, dividing responsibilities in a way that is defining of federalism. 7. Describe 3-4 criteria that are important to consider when setting a......

Words: 1375 - Pages: 6

Premium Essay

Cash Flow Poluuter Corp

... Essays and Research Documents The Research Paper Factory Join Search Browse Saved Papers Home Page » Business and Management Cash Flow Poluuter Corp In: Business and Management Cash Flow Poluuter Corp José A Valdés 3 de octubre de 2013 Sem. De Contabilidad Prof. Alejandro Méndez Case 11-1 Polluter Corp Facts of Case: Polluter Corp is an SEC registrant and manufacturer household cleaning products. In the course of operations, Polluter Corp emits emission pollutants; The Company receives emissions allowances, (EAs,) from the government for 2010 to 2030. Polluter Corp will upgrade their production facilities in 2014 in order to reduce their pollutants. Emissions Allowance are given by the government in order to offset pollution expense, with the goal being to reduce pollution 2010 Transactions After 2014, Polluter will emit less pollution, but until then it will need more EAs in order to avoid penalties. Transactions Fiscal Year 2010 After 2014, Polluter Corp will emit less pollution, but until then it will need more EA’s in order to avoid penalties, Polluter buys extra EA’s for 2012 from Clear Air Corp for $3 million. In an effort to offset the cost of the April 2, 2010 purchase of 2012 Eas, the company sold Eas with a vintage year of 2016 to Dirty Chemical Corp for $2 million. Answer Required: 1. What is the appropriate classification in the statement of cash flows in the company’s December...

Words: 348 - Pages: 2

Premium Essay

Economic

...challenge for environmental policy is to shift relative prices in favour of the natural environment while minimizing the negative impact on the profitability and hence viability of producers and on the welfare of households. The government has articulated a strategy for improving the quality of the environment in the JANEAP in which it proposed to adopt the polluter pays and the user pays principles as economic instruments to reduce the abuse of the environment and to ensure the efficient utilization of natural and other national resources. Environmental Management Systems will enhance the ability of private enterprises, public institutions, and households to respond positively to the thrust of the government’s environmental policy. The economic strategy to implement EMS is based on providing disincentives to generate waste and to dispose of it improperly and incentives to establish more environmentally friendly activities. It proposes that the central the central government adopt EMS in the public sector through a process of “greening the government” and establish an appropriate set of sanctions for polluters, charges for the use of natural resources and other environmental facilities, and a set of incentives to encourage firms and households toward more environmentally responsible behaviour and to attract investment into environmentally friendly activities. A properly equipped local government working with local businesses and local communities will manage......

Words: 8919 - Pages: 36

Premium Essay

Case 11-1: Polluter Corp.

...Case 11-1: Polluter Corp. Page 1 Suggested Solution -- Case 01 Objectives of the Case This case gives students an opportunity to apply cash flow principles to determine the appropriate classification of various transactions in the statement of cash flows. Applicable Professional Pronouncements ASC 230, Statement of Cash Flows (ASC 230) IAS 7, Statement of Cash Flows (IAS 7) Discussion 1 — Purchase of 2012 Emission Allowances What is the appropriate classification in the statement of cash flows in Polluter Corp.’s (the ―Company’s‖) December 31, 2010, financial statements for its purchase of 2012 emission allowances (―EAs‖) from Clean Air Corp.? Accounting Alternatives — Purchase of 2012 Emission Allowances Alternative 1 — The Company should classify the purchase of the 2012 EAs from Clean Air Corp. as an investing cash outflow in its December 31, 2010, statement of cash flows. Proponents of Alternative 1 believe the Company should classify the purchase of EAs as investing activities in the statement of cash flows given the Company’s election to classify the EAs as intangible assets on its balance sheet. Although EAs are not specifically mentioned in ASC 230, proponents of Alternative 1 believe, given the Company’s accounting policy, the EAs represent ―productive assets.‖ ASC 230-10-20 defines investing activities as follows: Investing activities include making and collecting loans and acquiring and disposing of debt or equity instruments and property, plant, and......

Words: 2701 - Pages: 11

Premium Essay

Polluter Case

...three years ago does not become a cash equivalent when its remaining maturity is three months. Examples of items commonly considered to be cash equivalents are Treasury bills, commercial paper, money market funds, and federal funds sold (for an entity with banking operations). Suggested Solution -- Case 01 Objectives of the Case This case gives students an opportunity to apply cash flow principles to determine the appropriate classification of various transactions in the statement of cash flows. Applicable Professional Pronouncements ASC 230, Statement of Cash Flows (ASC 230) IAS 7, Statement of Cash Flows (IAS 7) Discussion 1 — Purchase of 2012 Emission Allowances What is the appropriate classification in the statement of cash flows in Polluter Corp.’s (the ―Company’s‖) December 31, 2010, financial statements for its purchase of 2012 emission allowances (―EAs‖) from Clean Air Corp.? Accounting Alternatives — Purchase of 2012 Emission Allowances Alternative 1 — The Company should classify the purchase of the 2012 EAs from Clean Air Corp. as an investing cash outflow in its December 31, 2010, statement of cash flows. Proponents of Alternative 1 believe the Company should classify the purchase of EAs as investing activities in the statement of cash flows given the Company’s election to classify the EAs as intangible assets on its balance sheet. Although EAs are not specifically mentioned in ASC 230, proponents of Alternative 1 believe, given the Company’s accounting policy,......

Words: 763 - Pages: 4