Question

Coal, Inc. has paid $10 million to a waste disposal company to clean a site originally contaminated by Coal, Inc. through its operations and to assume its environmental liability (currently recorded as an $10 million liability on Coal's financial statements). State regulators have signed off on the liability transfer and now look to the waste disposal company as the responsible party for the cleanup.

Question 1

What is an appropriate way for Coal, Inc. to remove the environmental liability from its financial statements. When should it remove the liability as per the GAAP or IFRS?

Answer 1

Answer:

1.

Appropriate way for Coal Inc. to remove the Environment Liability:

Environment Liability can be removed from Financial Statements of Coal Inc. by Passing following Journal Entry in which Environment Liability is to be Debited and Waste Disposal Company is to be Credited.

Journal Entry:

Debit: Environment Liability A/C $ ___.

Credit: Waste Disposal Company A/C $___.

2.

WHEN to remove Environment Liability:

Concept-

Under Generally Accepted Accounting Principles (GAAP) & International Financial Reporting Standards (IFRS), Liability from Financial Statements can be removed at time of Payment of Cash OR Settled in Cash.

Based on above Concept, Coal Inc. can remove Environment Liability at time of Paying $ 10 Million to Waste Disposal Company to clean site. By Paying $ 10 Million to Waste Disposal Company Coal Inc's Environment Liability to clean site is transferred to Waste Disposal Company so, Environment Liability can be removed from Financial Statements of Coal Inc. as Per GAAP & IFRS.