I n t e r a c t I v e t e X t foundations in Accountancy/ acca financial accounting (ffa/FA) bpp learning Media is an acca approved Content Provider

QUESTION 

Provisions and contingencies III

 

An oil company causes environmental contamination in the course of its operations, but cleans up only 

when required to do so under the laws of the country in which it is operating. One country in which it 

has been operating for several years has up to now had no legislation requiring cleaning up. However, 

there is now an environmental lobby in this country. At the date of the company's year end, it is virtually 

certain that a draft law requiring clean-up of contaminated land will be enacted very shortly. The oil 

company will then be obliged to deal with the contamination it has caused over the past several years. 

Required 

What accounting treatment is required at the year end?