on apr 1 2012, the govt introduced further environment legislation which had the effect of requiring the entity to fit anti pollution filters within 2 years. an environment consultant has calculated that fitting the filters will reduce the required environmental costs by 33%. at the end of 30 sep 2012, the entity had not fitted the filters.
question: advise the entity as to whether they need to provide for the cost of the filters as at 30 sep 2012 and whether they shd reduce their existing environmental provision at this date.
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of course i jumped and shouted and claimed yes yes yes.. we need to provide for the filters since ITS VIRTUALLY CERTAIN THAT THE EXPENDITURE WILL BE REQUIRED BECAUSE THE LEGISLATION HAS BEEN PASSED.
but the answer in the kit says the following:
"although the legislation requiring the fitting of the filters has been passed, it does not come into force for 2 years. even if Shawler has the intention of fitting these filters, it is still not an obliging event. surprisingly, if Shawler had not fitted the filters before the date required by the legislation, it would still not require a provision"
pls explain!
Ask the Tutor ACCA FR
provisions
We're not obligated! There's no contract. Look, Mansoor, although in practice it may be unlikely, Shawler could simply cease production, close its doors, and walk away.
No obligation, no filters, no provision, no worries, no problem! :-)
so the obligation will not arise till the 2 years have past?
No, not even then.
We're not obligated until either we sign a contract or until we are put into a situation from which there is no alternative "escape" route
ok....thank u
You're welcome
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