|Creating a Safe Work Environment →|
Buy custom Environmental Cost Accounting essay
Accounting for the Penalty as a Charge to the Current Period
Accounting for the penalty charged to Counting Crows Company for removing the Scale Mounds as a current charge means that the penalty will be considered as a current period expense. This approach carries several advantages to the company. First, it may be difficult to trace the amount of Scale Mounds deposited in each prior period so as to apportion the penalty accordingly. Such an exercise is very costly or impractical and it is avoided when current cost accounting is used. Determining the amount of the penalty that relates to future periods is also subjective. Second, treating the charge as a current period expense is advantageous for simplicity. Determining the amount of the expense will be straightforward as it will be equal to the amount of the penalty. Although treating the charge as a current period expense offers simplicity, it will be conceptually wrong to do so since some of the Scale Mounds had formed in the previous accounting periods while others that will be catered for by the penalty may relate to future periods. Thus, the right approach would be to apportion the charge to the relevant including past, present, and future periods.
Accounting for the environmental pollution charge as a current expense means that the charge will be included in the statement of comprehensive income as an expense item. Consequently, the penalty will affect current period net income and will have no effect on previous or future periods.
Accounting for the Charge as a Correction of Prior Periods
Counting Crows Company can account for the environmental pollution charge as a correction of prior periods’ financial statements if it is practical to do so. If tracing the specific environmental pollution costs relating to prior periods is impossible or impractical due to excessive costs, the company should account for the penalty as current and future costs. Assuming that it is practical for the firm to apportion the charge to previous periods, restatement of previous financial statements will affect only those periods that will be presented in the future in the comparative financial statements section.
If the company ascertains that it can apportion the charge accurately to prior periods, the amounts allocated to each period will then be used to adjust the periods’ net income. The adjustments are effected by restating the retained earnings of the prior periods. The restatements of net income and the effects on balance sheet items are reported only for those periods that appear in the comparative financial information section only. According to IAS 8 which governs changes in accounting estimates and errors, restatement of financial statements should be made only where the errors are material and should cover the earliest period presented in the financial statements.
Accounting for the Penalty as a Capital Item to be Amortized over Future Periods
Treating the charge as a capital item to be amortized over future periods is conceptually correct if it is difficult or impractical to determine of the amount of the penalty that relates to prior periods due to high costs. This approach will not require restatement of prior periods’ financial statements but it calls for estimating the amount of the penalty that relates to the current and future periods.
First, Counting Crows Company has to determine the amount that must be charged to each period as an expense. The payment made by the company for the charge will be carried as an asset first and the amortized gradually over future financial periods. The amortized amount foe each period will be charged to that period’s income statement while the unamortized amount of the penalty will appear as an asset on the company’s balance sheet.
- 5% for more than 15 pages
- 10% for more than 30 pages
- 15% for more than 50 pages
- ...Customer's choices of either double or single spaced writing;
- ...300/600 words per page;
- ...1" margins on all sides;
- ...12 pt., Times New Roman font;
- ...Formatting style of customer's choice;
- ...Free reference page.
- FREE Email delivery;
- FREE revisions;
- FREE Title page;
- FREE Outline(on demand);
- FREE Plagiarism report(on demand);
- FREE Table of Contents(on demand);
- FREE Bibliography.