Environmental costs
Examples include waste disposal, pollution control and remediation. Whether a cost is expensed, included in an asset, or reflected in a provision depends on the specific facts and applicable standards. A provision requires a present obligation, probable outflow and a reliable estimate; an intention to spend in the future alone does not create one.
Worked example
A company contaminates land and is legally obliged to clean it up. If an outflow is probable and can be reliably estimated at $80,000, it recognises an $80,000 provision, subject to appropriate measurement and discounting.
Common mistake
Recognising a provision for every environmental cost regardless of whether an obligation exists, or assuming all environmental spending is immediately expensed.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | FR | Supporting | September 2026–June 2027 |
| ACCA | SBR | Supporting | September 2026–June 2027 |