Should fuelsource recognize a provision

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Reference no: EM13164482

Scenario 1Energy Inc. (Energy), which operates in the oil industry, is a U.S. subsidiary of a U.K.entity that prepares its financial statements in accordance with (1) IFRSs in reporting toits parent and (2) U.S. GAAP for reporting to its U.S.-based lender. Energy's operations sometimes result in soil contamination. Energy cleans up this contamination whenrequired to do so under the laws of the particular country in which it operates. Onecountry in which Energy operates has no legislation requiring cleanup, and Energy hasinadvertently contaminated land in that country in prior years. As of December 31, 20X1,it is virtually certain that a draft law requiring a cleanup of land already contaminatedwill be enacted, but not until shortly after the year-end.

Required: Should Energy recognize a provision as of December 31, 20X1, (1) in reporting to itsU.K. parent under IFRSs and (2) in reporting to its U.S.-based lender in accordance withU.S. GAAP?Scenario 2FuelSource Co (FuelSource) is a U.S. subsidiary of a U.K. entity that prepares itsfinancial statements in accordance with (1) IFRSs in reporting to its parent and (2) U.S.GAAP for reporting to its U.S.-based lender. FuelSource also operates in the oil industryand its operations sometimes result in soil contamination. FuelSource operates in DirtyCountry where there is no environmental legislation. However, FuelSource has a widelypublished environmental policy in which it undertakes to clean up all contamination thatit causes. FuelSource has a record of honoring this published policy. The U.K. parent alsohas a widely published environmental policy in which it undertakes to clean up allcontamination it causes and has a record of honoring this published policy.

Required: Should FuelSource recognize a provision for cleanup costs it may incur in Dirty Country(1) in reporting to its U.K. parent under IFRSs and (2) in reporting to its U.S.-basedlender in accordance with U.S. GAAP?Scenario 3The government introduces a number of changes to the income tax system. As a result ofthese changes, Energy will need to retrain a large proportion of its administrative andsales workforce in order to ensure continued compliance with the new regulations. As ofthe balance sheet date, no retraining of staff has taken place.

Should Energy recognize as of the balance sheet date a provision for the expected costs toretrain the staff (1) in reporting to its U.K. parent under IFRSs and (2) in reporting to itsU.S.-based lender in accordance with U.S. GAAP?Scenario 4Under new legislation, FuelSource is required to install smoke filters in its factories byJune 30, 20X2. FuelSource has not yet installed the smoke filters as of December 31,20X1.

Required: Should FuelSource recognize a provision as of December 31, 20X1, (1) in reporting to itsU.K. parent under IFRSs and (2) in reporting to its U.S.-based lender in accordance withU.S. GAAP?

Reference no: EM13164482

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