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On 29 May 2012, the (Australian) Water Accounting Standards Board (WASB) passed the Australian Water Accounting Standard 1 (AWAS1 - can be downloaded and reviewed at: http://www.bom.gov.au/water/standards/documents/awas1_v1.0.pdf ).
Crystal Creek Falls is located between the Queensland (Australia) cities of Ingham and Townsville. Each week, a million hectare-metres of clean cool, clean, crystal clear water flow through it and on into the Pacific Ocean, 10 kilometres later. One of the farmers in the lower reaches of the river (Mr Douglas McKay) has converted his crops from water-intensive peaches to low-water use Acai Palms.
The above farmer has formed a corporation to juice and sell the Acai Palm Fruit - Majestic Acai Juice Australia Inc. (MAJAI). A key asset of MAJAI is the rights to 100,000 hectare-metres of water per week that the farmer transferred from his farm to MAJAI. NB: due to the change in use of the water (i.e. from irrigation to food processing) the water (which was previously taken from below the falls) will have to be taken from well above the falls. The falls is currently only minor tourist attraction but its value as a draw for tourists has been growing.
1) Please download and review the document at http://www.bom.gov.au/water/standards/documents/awas1_v1.0.pdf ,
2) Comment on whether or not the transfer of the water rights from the farm to the processing firm is going to be acceptable (explain).
3) Discuss the accounting issues that may be raised by the transfer of the water rights.
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As per the current situation and the overall operating conditions of the farm, it can be seen that the farmer who has the right of using water for the farm which is located at the lower banks of the river, has converted its farmland from a higher water consuming land, to a low water using palm.
The farmer has also started a juice corporation, namely Majestic Acai Juice Australia, in which the farmer intends to manufacture juice and sell. However there are some challenges in the process, namely the introduction of Australian Water Accounting Standard.
On application of the principles provided by the Australian Water Accounting Standard 1, the right of water will have to be transferred to the firm who would be manufacturing juice as the same would be the principal water consuming body.