Emission Allowance Memo Sample

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PURPOSE:
This memo describes the issue of emission allowances as intangible assets and the accounting treatment to correctly show this kind of assets on the statement of cash flows.
SUMMARY
- Classification in the Statement of Cash Flow of the purchase made on April 2, 2010, of emission allowances from Clean Air Corp.
- Classification in the Statement of Cash Flow of the sale made to Dirty Chemical Corp. for emission allowances with the vintage year of 2016.
- Correct classification of the purchase and selling of the emission allowances under the IFRS.
DISCUSSION
On April 2, 2010, our company made a purchase from Clean Air Corp. of three million dollars to acquire extra emission allowances (EAs). According to the Accounting Standards Codification 230 (“ASC 230”) section 45-11 these type of purchase should be stated gross on the investing side of the Cash Flow statement. EAs should be recognized as intangible assets, and the entry for this purchase is known as a cash outflow for the investing activities section according to ASC …show more content…
International Accounting Standard 20, Accounting for Government Grants and Disclosure of Government Assistance (IAS 20) involves the recognition of EAs from pollution to be stated as differed income. Accordingly, the sale of EAs should be entered with two different entries; first, debit Cash for $2 million dollars and credit Emission Allowances for $2 million dollars. Second, debit Government Grant (differed Income) and credit Emission Allowance Revenue of $2 million

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