Cempaka Berhad is a company that carries out a diverse range of activities. It is proud...

 

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Cempaka Berhad is a company that carries out a diverse range of activities. It is proud of its reputation as a 'caring' organisation and has adopted various ethical policies towards its employees and the wider community in which it operates. As part of its annual financial statements, the company publishes details of its environmental policies, which include setting performance targets for activities such as recycling, controlling emissions of noxious substances and limiting use of non-renewable resources. The finance director is reviewing the accounting treatment of various items prior to finalising the financial statements for the year ended 31 December 2021. All items are material in the context of the financial statements as a whole. The financial statements are due to be approved by the directors on 31 March 2022. (a) (b) The company has an overseas operation that is involved in mining precious metals. These activities cause significant damage to the environment, including deforestation. The company expects to abandon the mine in eight years' time. The mine is situated in a country where there is no environmental legislation obliging companies to rectify environmental damage and it is very unlikely that any such legislation will be enacted within the next eight years. It has been estimated that the cost of cleaning the site and replanting the trees will be RM40 million if the replanting were successful at the first attempt, but it will probably be necessary to make a further attempt, which will increase the cost by a further RM8 million. (7 marks) On 31 December 2021, one of its operations moved from Pulau Melur to Pulau Mawar in order to take advantage of government development grants. Its main premises in Pulau Melur are held under an operating lease, which runs until 31 December 2024 and the lease is non-cancellable. Annual rentals under the lease are RM30 million. (6 marks) Cempaka Berhad is a company that carries out a diverse range of activities. It is proud of its reputation as a 'caring' organisation and has adopted various ethical policies towards its employees and the wider community in which it operates. As part of its annual financial statements, the company publishes details of its environmental policies, which include setting performance targets for activities such as recycling, controlling emissions of noxious substances and limiting use of non-renewable resources. The finance director is reviewing the accounting treatment of various items prior to finalising the financial statements for the year ended 31 December 2021. All items are material in the context of the financial statements as a whole. The financial statements are due to be approved by the directors on 31 March 2022. (a) (b) The company has an overseas operation that is involved in mining precious metals. These activities cause significant damage to the environment, including deforestation. The company expects to abandon the mine in eight years' time. The mine is situated in a country where there is no environmental legislation obliging companies to rectify environmental damage and it is very unlikely that any such legislation will be enacted within the next eight years. It has been estimated that the cost of cleaning the site and replanting the trees will be RM40 million if the replanting were successful at the first attempt, but it will probably be necessary to make a further attempt, which will increase the cost by a further RM8 million. (7 marks) On 31 December 2021, one of its operations moved from Pulau Melur to Pulau Mawar in order to take advantage of government development grants. Its main premises in Pulau Melur are held under an operating lease, which runs until 31 December 2024 and the lease is non-cancellable. Annual rentals under the lease are RM30 million. (6 marks)

Answer rating: 100% (QA)

Answer a The company should recognise the cost of replanting the trees and any further attempts as a ... View the full answer