Question

Discuss whether the following items would meet the definition of a liability using the criteria currently in place under IFRS. If so, explain with reference to the appropriate criteria.

1.Environmental remediation when a chemical spill has occurred. This spill has violated an existing law and statute. Does a liability for cleanup exist?

2.Environmental remediation after a chemical spill has occurred. No existing law or statute has been broken. Does a liability for cleanup exist?

3.As part of its contract with the government, a logging company must replant one tree for each tree it cuts. Does a liability for replanting exist?

4.A logging company has a corporate policy of always replanting trees and advertises this fact in its corporate and marketing brochures. Does a liability for replanting exist?

5.An airline collects cash for tickets issued for future charter flights to exotic locations.

Answer 1

Discuss whether the following items would meet the definition of a liability using the criteria currently in place under IFRS. If so, explain with reference to the appropriate criteria.
1.Environmental remediation when a chemical spill has occurred. This spill has violated an existing law and statute. Does a liability for cleanup exist?	A liability for cleanup exist it  is a duty or responsibility that the entity must fulfill and has no discretion to avoid.These laws result in a legal liability if the entity violates the law.The obligation exists at the balance sheet date, assuming the spill event occurred prior to the balance sheet date, making it a present responsibility.
2.Environmental remediation after a chemical spill has occurred. No existing law or statute has been broken. Does a liability for cleanup exist?	If there is no legal burden or requirement to bear the remediation costs, whether there is a liability will depend on whether the entity actually has responsibility for remediation.The obligation exists at the balance sheet date, assuming the spill event occurred prior to the balance sheet date, making it a present responsibility.
3.As part of its contract with the government, a logging company must replant one tree for each tree it cuts. Does a liability for replanting exist?	A liability for replanting exists once the transaction obligating the entity – cutting a tree – occurs After that occurs, the entity has no ability to avoid the cost which will result in a future outflow of resources.
4.A logging company has a corporate policy of always replanting trees and advertises this fact in its corporate and marketing brochures. Does a liability for replanting exist?	It is voluntary corporate policy to replant trees.  A constructive obligation exists even though the entity may not have a legal requirement to replant trees because its corporate policy has created the expectation that it will do so.
5.An airline collects cash for tickets issued for future charter flights to exotic locations.	A liability exists to deliver the service or issue a refund of the cash to the customer.Until the flight takes place, the cash received remains an amount reported under Unearned Revenue. An airlines refers to this account as Advance ticket sales on their consolidated statement of financial position.