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Polluter Corp. in the United States

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Polluter Corp. is a company that operates three plants in the United States. They make different cleaning products which are sold to customers. The U. S. government sells or gives out emissions allowances to companies, including Polluter Corp. , which determines a set amount of pollutants and greenhouse gases a company can let into the environment. These are given out to help discourage pollution by companies. “EA’s” are assigned a year that a company can use in, and they also can be bought and/or swapped with other EA’s from different companies, as long as the swapped EA’s have the same usage year.

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When the usage year for the EA is over, they are returned to the government. If the company emits more pollution that the allowed amount on the EA, then the company will pay a fine. Polluter has recorded their EA’s as intangible assets. Right now, Polluter Corp. emits a significant amount of pollutants into the environment because of its old manufacturing equipment.

They plan on upgrading the equipment in 2014, which will help decrease the amount of pollutants they emit from production.

Since they don’t have the new equipment yet, Polluter predicted that they would need additional EA’s. They spent $3 million to purchase EA’s valid in 2012. However, Polluter believes that they will have more EA’s than they will need when the upgrade is complete. They later sold EA’s valid in 2016 for $2 million. The total costs for the equipment upgrades are expected to be $15 million. In ASC 230-10-45, which deals with the overall presentation of the statement of cash flows, Paragraph 13c says that “… the following are cash outflows for investing activities: c.

Payments at the time of purchase or soon before or after purchase to acquire property, plant, and equipment and other productive assets…” To confirm that an EA is a productive asset, FASB Concept No. 6 Paragraph 26 states that “An asset has three essential characteristics: (a) it embodies a probable future benefit that involves a capacity, singly or in combination with other assets, to contribute directly or indirectly to future net cash inflows, (b) a particular entity can obtain the benefit and control others’ access to it, and (c) the transaction or ther event giving rise to the entity’s right to or control of the benefit has already occurred. ” The $3 million in EA’s purchased from Clean Air Corp. will apply here. The EA’s will contribute to Polluter’s future cash flow because they will be allowed to emit pollutants that their current equipment produces from manufacturing their goods. They will control the access and gain the benefit to emit pollutants from the government or other entity that provided the EA. They also already have possession of the $3 million worth of EA’s.

Therefore, this transaction will be recorded under investing activities of the company’s statement of cash flows. In Paragraph 12c of ASC 230-10-45, it says that “…the following are cash inflows from investing activities: c. Receipts from sales of property, plant, and equipment and other productive assets. ” FASB Concept No. 6 Paragraph 26 also applies here. It is proper to recognize FA’s as intangible assets. The FASB Master Glossary states that intangible assets are “Assets (not including financial assets) that lack physical substance. It also states that financial assets are “cash, evidence of an ownership interest in an entity, or a contract that conveys to one entity a right to do either of the following: a. Receive cash or another financial instrument from a second entity, b. Exchange other financial instruments on potentially favorable terms with the second entity. ” The FA itself is not cash, nor ownership in an entity, nor entitles receipt of cash, therefore it does not qualify as a financial asset, satisfying the qualifications of being an intangible asset, along with lacking physical substance.

Cite this Polluter Corp. in the United States

Polluter Corp. in the United States. (2016, Sep 30). Retrieved from https://graduateway.com/polluter-corp-in-the-united-states/

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