- 6 Marks
CR – May 2016 – L3 – Q4b – Provisions, Contingent Liabilities and Contingent Assets (IAS 37)
Discuss how the environmental liability for LALUPON Plc, arising from hazardous pollution, should be accounted for in its financial statements.
Question
LALUPON Plc owns a piece of land in a residential area. PONJEB Ltd has leased the piece of land from LALUPON Plc and is using it to store and dispense gas. The Federal government has announced its intention to enact environmental legislation requiring property owners to accept liability for environmental pollution. As a result, LALUPON Plc introduced a hazardous policy and has begun to apply the policy to its properties.
LALUPON Plc has had a report of a gas leakage and subsequent fire outbreak which damaged surrounding properties, but no life was lost. LALUPON Plc has no right of recourse against PONJEB Ltd or its insurance company for the clean-up and compensations to owners of properties destroyed. At April 30, 2014, it is virtually certain that draft legislation requiring a clean-up of the land and payment of compensations to victims will be enacted.
Required:
Discuss how the above events should be accounted for in the financial statements of LALUPON Plc.
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