Page 156 - SBR Integrated Workbook STUDENT S18-J19
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Chapter 11
Example 3
Environmental issues
Alias publishes an annual integrated report (<IR>). In its <IR>, Alias makes
extensive reference to its impact on the environment. To reduce its effect on
natural capitals, Alias has a policy of cleaning up and repairing any damage or
contamination it has caused to the environment. Alias has a well-documented
record of honouring this published policy.
On 1 October 20X5, Alias brought self-constructed machinery into use. At this
date the machine was carried at its cost of $10 million. It will be disassembled
and decommissioned on 30 September 20X9. As soon as the machine was
brought into use, it caused damage to local land. The best estimate of the cost
of repairing this damage is $2 million. Every year that the machine is used
creates additional damage to this land. The damage created by each year of
additional use would cost $0.5 million to rectify.
There is no legislation in place that requires Alias to repair damage to the local
land. If repairs were to take place then they would occur on 30 September
20X9.
Interest rates representing risks specific to Alias’ operations are 8%.
Advise Alias on how to deal with the above in its financial statements for
the year ended 30 September 20X6.
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