This paper discusses the process and treatment of intergroup transactions in preparing consolidated financial statements, as well as the role of companies in climate change and the concept of cap and trade schemes. It also explores the New Zealand emissions trading scheme and its implications.
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Running head: ADVANCED FINANCIAL ACCOUNTING. Advanced financial accounting. Name of the student: Name of the university: Author Note:
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1 Executive Summary: Thispapershowstheprocessandtreatmentofvariousintergrouptransactionswhile preparingconsolidatedfinancialstatement.Theexcelspreadsheetwithjournalentries relating to inter-group transactions and the consolidated financial statement is prepared. The discussion part of the report summarizes the effect of climate change and the role of company in climate change is described properly. This report also summarizes the concept of Cap and trade schemes and its application in the industry. The bottom part of the report explains New Zealand emissions trade scheme and its implications with through analysis of the impact of such scheme on the company.
2 Table of Contents 1. Introduction:...........................................................................................................................3 2. Climate change:......................................................................................................................4 3. Role of corporates in climate change:....................................................................................5 4. Cap and trade schemes:..........................................................................................................6 5. New Zealand emissions trading scheme:...............................................................................7 6. Potential obligations and opportunities from NZ ETS for Pumkin ltd:.................................8 7. Conclusion:............................................................................................................................9 8. References:...........................................................................................................................10
3 1. Introduction: The term “Climate change” has become popular issue for many countries.Many countries has formulated some regulations and laws to reduce the emissions of Greenhouse gas whether it is due to the industrial activities or other activities. Many countries has introduced Cap and trade scheme to prevent excess emissions of Greenhouse gas. Some of the countries has made it as a serious concern and has taken initiatives to promote tree plantation that will absorb the Carbon from the environment reducing the overall carbon level of the country. 2. Climate change: The word “Climate change” means the change in the climate due to human use of fossil fuels or some other related action directly or indirectly causing to excess production of carbon di oxide or such other greenhouse gas, which is major component responsible for increase in overall temperature of the earth.The increase in temperature and the increase in the sea level due to increased level of greenhouse gas is the major cause of climate change. Business houses play a key role in extradition of greenhouse gas. 3. Role of corporates in climate change: Corporates play a key role in increasing the overall pollution parameters.the corporate citizenship has become major concern for the company to consider. The CSR code of conduct binds corporates to report their contribution towards environmental issues such as climate changeandpollution.Therecentimprovementsinfinancialreportinghasincluded explanation from the company in regards to the activities that may contribute towards environmental changes and the initiatives of the corporates to stop such emission. The
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4 corporates are now responsible for their acts against the environment as this issue has become global issue and every country in the world is taking steps towards the environmental changes. The major accounting standard boards has made compulsory for the manufacturing companies or the company having accountability for climate changes inclusion of disclosure of initiatives taken to compensate or to reduce greenhouse gas by these companies. This resulted into a proper disclosure in financial statement whether the company’s operations causing life of people surrounding it in a danger situation or whether the company is taking initiatives to provide better standard of life. 4. Cap and trade schemes: The cap and trade schemes is the initiatives of the governments to control the emissions of harmful chemicals and greenhouse gases that is the result of industrial activities. This scheme provides a permissible emission limit to the companies and the companies have to buy these cap and trade limit from the company in order to perform their business activities relating to emissions of greenhouse gas and harmful chemicals. The company generally decides how much pollution that they can make due to their operations and based on which they take authorization from the government. If the company produce higher level of emission as permitted by the government then they will be taxed for doing such excess emission. Generally, the company responsible for emission does not only purchase the permit but also by the companies, which is purchasing it for resale purpose. This scheme generally limits and regulate the emission of chemicals and greenhouse gas by the companies up to an acceptable level as decided by the government of that country. The accounting for these schemes is considered to be a challenge for the companies as there is no accounting standard has been issued for such till date. Therefore, the treatment of
5 such expenditure is still in question. These permit is the nature of Intangible assets and it can be treated as in same manner as the treatment of intangible asset can be done. 5. New Zealand emissions trading scheme: It is the highly linked internationally emissions trading scheme formulated to reduce greenhouse gas emissions. The main objective of the scheme is to assists New Zealand to meet its international obligations and reduce the level of emissions by the corporate bodies in New Zealand below the usual level. The price being paid is used as financial incentives to those companies who engaged in the business of technological advancement that reduce emissions. It also promote initiatives of tree plantation that will absorb carbon from the environment and make the environment a green place to live. This scheme requires all the units to report their carbon emissions activity. The role of New Zealand emissions trading scheme is explained below: a)Efficient reduction in the emission reduction of carbon:the scheme is more focused towards regulating the emissions of carbon from the industries as well as households as matter of practice. b)Plantation of tree and forests to absorb more carbon:The scheme provides financial assistance to those organizations that are engaged in plantation of tree and forests. 6. Potential obligations and opportunities from NZ ETS for Pumkin ltd: The pumpkin limited is engaged in the agricultural activities. As due to such activities, they are exposed towards potential obligations such as plantation of more forests that may consume carbon from environment and opportunities that are provided to them are in form of financial incentives. The obligationsare listed below:
6 a)The horticulturists should not deforest the land that have been used by the company for horticulture purpose. b)The company should perform proper recycling mechanisms instead of burning them. c)Thecompanyshouldexportcarbonintensiveproductsinsteadofconsuming internally. However, as there are some opportunities for the company due to NZ ETS, which is mainly in the form of financial assistance or incentives provided to them.
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7 7. Conclusion: From the above discussion, it can be concluded that the climate change has serious impact on the company’s going concern concept and on the health of the citizens. As being corporate citizen, the corporates has to reduce emissions of carbon and has to invest more on plantation. As they are not only profit making machine, they are also accountable for their acts regarding environmental issues. The life of the company is also more dependent on the environmental changes.
8 8. References: Diaz-Rainey, I. and Tulloch, D.J., 2018. Carbon pricing and system linking: lessons from the New Zealand emissions trading scheme.Energy Economics,73, pp.66-79. Dong, C., Shen, B., Chow, P.S., Yang, L. and Ng, C.T., 2016. Sustainability investment under cap-and-trade regulation.Annals of Operations Research,240(2), pp.509-531. Du, S., Hu, L. and Song, M., 2016. Production optimization considering environmental performance and preference in the cap-and-trade system.Journal of Cleaner Production,112, pp.1600-1607. Hadi, K.T., 2015. Consolidated financial statements. Hoyle, J.B., Schaefer, T. and Doupnik, T., 2015.Advanced accounting. McGraw Hill. Inderberg, T.H.J. and Bailey, I., 2017. Adopting and designing New Zealand’s emissions trading scheme. InThe Evolution of Carbon Markets(pp. 117-135). Routledge. Inderberg, T.H.J., Bailey, I. and Harmer, N., 2017. Designing New Zealand’s emissions trading scheme.Global Environmental Politics,17(3), pp.31-50. Kulikova, L.I., Samitova, A.R. and Aletkin, P.A., 2015. Investment property measurement at fair value in the financial statements.Mediterranean Journal of Social Sciences,6(1 S3), p.401. Leining, C. and Kerr, S., 2016.Lessons learned from the New Zealand emissions trading scheme(No. 16_06). Ranson, M. and Stavins, R.N., 2016. Linkage of greenhouse gas emissions trading systems: Learning from experience.Climate Policy,16(3), pp.284-300.
9 Schuur, E.A., McGuire, A.D., Schädel, C., Grosse, G., Harden, J.W., Hayes, D.J., Hugelius, G., Koven, C.D., Kuhry, P., Lawrence, D.M. and Natali, S.M., 2015. Climate change and the permafrost carbon feedback.Nature,520(7546), p.171. Urry, J., 2015. Climate change and society. InWhy the social sciences matter(pp. 45-59). Palgrave Macmillan, London.
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