Question 18.2 Steam Away Limited operates luxury train journeys around South Africa in authentic steam trains....

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Question 18.2 Steam Away Limited operates luxury train journeys around South Africa in authentic steam trains. Its target market is mainly retired tourists who seek nostalgic train travel. Due to the pressure from environmentalists, the Environmental Agency of South Africa have put forward to parliament an amendment to the National Environmental Air Quality Act. This amendment requires all steam trains in South Africa to have smoke reduction filters fitted to the steam engines. The new legislation was accepted and announced to all steam train owners on 31 October 20X2. It required all steam trains owners to have these smoke reduction filters fitted by 31 October 20X3. If these new filters were not fitted, a fine may be imposed based on the size of the steam engine. The board of directors of Steam Away Limited took a decision not to fit these new filters as they believed that their steam engines were currently environmentally friendly enough. A year ago the company hired an assessor to assess the engines and the report indicated that the engines were "running smoothly" and produced "only moderate levels of smoke pollution despite there being no filters fitted." The directors are therefore of the opinion that the engines need not be fitted with smoke reduction filters and are simply ignoring the amendment to the Act. Steam Away Limited has a 31 December year end. Required: a) Discuss whether Steam Away Limited has a present obligation from a past obligating event at 31 December 20X2 with reference to International Financial Reporting Standards. b) Discuss whether Steam Away Limited has a present obligation from a past obligating event at 31 December 20X3 with reference to International Financial Reporting Standards. Question 18.2 Steam Away Limited operates luxury train journeys around South Africa in authentic steam trains. Its target market is mainly retired tourists who seek nostalgic train travel. Due to the pressure from environmentalists, the Environmental Agency of South Africa have put forward to parliament an amendment to the National Environmental Air Quality Act. This amendment requires all steam trains in South Africa to have smoke reduction filters fitted to the steam engines. The new legislation was accepted and announced to all steam train owners on 31 October 20X2. It required all steam trains owners to have these smoke reduction filters fitted by 31 October 20X3. If these new filters were not fitted, a fine may be imposed based on the size of the steam engine. The board of directors of Steam Away Limited took a decision not to fit these new filters as they believed that their steam engines were currently environmentally friendly enough. A year ago the company hired an assessor to assess the engines and the report indicated that the engines were "running smoothly" and produced "only moderate levels of smoke pollution despite there being no filters fitted." The directors are therefore of the opinion that the engines need not be fitted with smoke reduction filters and are simply ignoring the amendment to the Act. Steam Away Limited has a 31 December year end. Required: a) Discuss whether Steam Away Limited has a present obligation from a past obligating event at 31 December 20X2 with reference to International Financial Reporting Standards. b) Discuss whether Steam Away Limited has a present obligation from a past obligating event at 31 December 20X3 with reference to International Financial Reporting Standards.

Answer rating: 100% (QA)

a Present Obligation at 31 December 20X2 According to IAS 37 Provisions Contingent Liabilities and Contingent Assets a present obligation arises from ... View the full answer