Polluter Corp Case Study
MEMORANDUM
To:
From:
Date:
Subject:
Statement of Facts * Polluter Corp. runs three manufacturing facilities in the United States where they make various household cleaning products. * The Federal Government restricts the company to an emission allowance or EA, which must be used in the year prescribed by the government between 2010 and 2030. * EAs are considered intangible assets with a cost basis of zero. * EAs can be bought and sold from other companies with no consequence in order to satisfy pollution control obligations. * At the end of a compliance period, Polluter Corp. must provide sufficient EAs to the government or pay a fine. * Polluter Corp expects they will need to purchase additional EAs for fiscal years 2010-2014, but will be upgrading their facilities to reduce emissions and should be able to sell some of their EAs after 2014. …show more content…
Issue 2: Should the sale of emission allowances for 2016 be considered an investing, operating, or financing activity in the statement of cash flows for 2010?
Conclusions and Authoritative Reasoning
Issue 1: The purchase of emission allowances for 2012 is an investing activity on the 2010 statement of cash flows. * ASC 230-10-45-13 includes all of the following are cash outflows for investing activities: * a. “Disbursements for loans made by the entity and payments to acquire debt instruments of other entities” * b. “Payments to acquire equity instruments of other entities”
c. “Payments at the time of purchase or soon before or after purchase to acquire property, plant, and equipment and other productive assets… Generally, only … amounts paid at the time of purchase or soon before or after purchase of property, plant, and equipment and other productive assets are investing cash outflows.
To:
From:
Date:
Subject:
Statement of Facts * Polluter Corp. runs three manufacturing facilities in the United States where they make various household cleaning products. * The Federal Government restricts the company to an emission allowance or EA, which must be used in the year prescribed by the government between 2010 and 2030. * EAs are considered intangible assets with a cost basis of zero. * EAs can be bought and sold from other companies with no consequence in order to satisfy pollution control obligations. * At the end of a compliance period, Polluter Corp. must provide sufficient EAs to the government or pay a fine. * Polluter Corp expects they will need to purchase additional EAs for fiscal years 2010-2014, but will be upgrading their facilities to reduce emissions and should be able to sell some of their EAs after 2014. …show more content…
Issue 2: Should the sale of emission allowances for 2016 be considered an investing, operating, or financing activity in the statement of cash flows for 2010?
Conclusions and Authoritative Reasoning
Issue 1: The purchase of emission allowances for 2012 is an investing activity on the 2010 statement of cash flows. * ASC 230-10-45-13 includes all of the following are cash outflows for investing activities: * a. “Disbursements for loans made by the entity and payments to acquire debt instruments of other entities” * b. “Payments to acquire equity instruments of other entities”
c. “Payments at the time of purchase or soon before or after purchase to acquire property, plant, and equipment and other productive assets… Generally, only … amounts paid at the time of purchase or soon before or after purchase of property, plant, and equipment and other productive assets are investing cash outflows.