Polluter Corp

Topics: Asset, Balance sheet, Goodwill Pages: 2 (644 words) Published: May 3, 2013
Polluter Corp.

Polluter Corp. is a company that operates three plants in the United States. They make different cleaning products which are sold to customers. The U.S. government sells or gives out emissions allowances to companies, including Polluter Corp., which determines a set amount of pollutants and greenhouse gases a company can let into the environment. These are given out to help discourage pollution by companies. “EA’s” are assigned a year that a company can use in, and they also can be bought and/or swapped with other EA’s from different companies, as long as the swapped EA’s have the same usage year. When the usage year for the EA is over, they are returned to the government. If the company emits more pollution that the allowed amount on the EA, then the company will pay a fine. Polluter has recorded their EA’s as intangible assets.

Right now, Polluter Corp. emits a significant amount of pollutants into the environment because of its old manufacturing equipment. They plan on upgrading the equipment in 2014, which will help decrease the amount of pollutants they emit from production. Since they don’t have the new equipment yet, Polluter predicted that they would need additional EA’s. They spent $3 million to purchase EA’s valid in 2012. However, Polluter believes that they will have more EA’s than they will need when the upgrade is complete. They later sold EA’s valid in 2016 for $2 million. The total costs for the equipment upgrades are expected to be $15 million.

In ASC 230-10-45, which deals with the overall presentation of the statement of cash flows, Paragraph 13c says that “… the following are cash outflows for investing activities: c. Payments at the time of purchase or soon before or after purchase to acquire property, plant, and equipment and other productive assets…” To confirm that an EA is a productive asset, FASB Concept No. 6 Paragraph 26 states that “An asset has three essential characteristics: (a) it embodies a probable...
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