Provision help needed
Barry
Registered Posts: 101 Dedicated contributor 🦉
I am currently having trouble understanding this question and wondered if anyone can help.
A company undertakes a cap and trade scheme for emission rights and on 1.1.06 is allocated 10,000 allowances during 2006. It has recognised these allowances at fair value of £100,000.
The company is preparing interim financial statements to 30.6.06 and has generated emissions equivalent to 6000 allowances. For the full year the company expects to purchase an additional 2500 allowances and expects to require 12500 emission allowances. The company allocates allowances to cover the obligation using FIFO. How should the company's liability be measured in the company's interim financial statements?
Any help would be appreciated.
A company undertakes a cap and trade scheme for emission rights and on 1.1.06 is allocated 10,000 allowances during 2006. It has recognised these allowances at fair value of £100,000.
The company is preparing interim financial statements to 30.6.06 and has generated emissions equivalent to 6000 allowances. For the full year the company expects to purchase an additional 2500 allowances and expects to require 12500 emission allowances. The company allocates allowances to cover the obligation using FIFO. How should the company's liability be measured in the company's interim financial statements?
Any help would be appreciated.
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Comments
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Hi
According to your question, the company has generated an obligation of 6,000 allowances. This allocation is done on a FIFO basis and as the company has not yet allocated all of the emission allowances (10,000 allowances at £100,000) there is no shortfall at 30 June 2006. The liability will therefore be recognised at the carrying amount per unit held at that reporting date which is 6,000 x £10 = £60,000.
Hope that helps.
Steve0
