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Emission Rights Trading Schemes

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Questions and Answers

What do emission rights permit an entity to do?

Emit pollutants above a specified level

Emit pollutants up to a specified level (correct)

Emit pollutants without any restrictions

Avoid emitting any pollutants

In cap and trade schemes, what can an entity do if it emits fewer pollutants than it has allowances for?

Pay a fine

Hold on to the excess allowances

Sell the excess allowances (correct)

Purchase additional allowances

Why was IFRIC 3, Emission Rights, withdrawn in June 2005?

To introduce stricter emission regulations

Because it was outdated

Because entities did not find it useful

Due to concerns over the consequences of the required accounting (correct)

Under IFRS, what do emission allowances represent?

Assets (C) Signup and view all the answers

What is the key purpose of issuing emission rights by the government?

To allow emissions up to a specified level (C) Signup and view all the answers

How are emission allowances recognized in accounting?

As assets, often presented as part of inventory (D) Signup and view all the answers

How are allowances received free of charge from the government recognised?

At fair value with a corresponding deferred income (liability) (A) Signup and view all the answers

What happens if the residual value of the allowances is less than their carrying value?

The entity recognises an impairment (D) Signup and view all the answers

When are the allowances recognised in the income statement?

When they are delivered to the government in settlement of the liability (B) Signup and view all the answers

What basis can be used for amortisation of government grants over the compliance period?

Units-of-production basis (C) Signup and view all the answers

Under what circumstances is a provision recognised related to delivering allowances or paying fines?

If pollutants have been emitted (D) Signup and view all the answers

In which model can an entity choose to measure subsequent emissions allowances under IAS 38?

Revaluation model (D) Signup and view all the answers