The following table identifies the changes made to this Subtopic.
(P) December 16, 2027; (N) December 16, 2028
818-10-65-1The Environmental Credits and Environmental Credit Obligations Topic includes the following Subtopics: - a
Overall
- b
Environmental Credits
- c
Environmental Credit Obligations.
(P) December 16, 2027; (N) December 16, 2028
818-10-65-1The Subtopics listed in paragraph 818-10-05-1 establish the financial accounting and reporting requirements for entities that obtain or generate an environmental credit or are subject to regulatory compliance programs (for example, cap-and-trade, renewable portfolio standards, or renewable fuel standards) that result in an environmental credit obligation. (P) December 16, 2027; (N) December 16, 2028
818-10-65-1Entities engage in a variety of transactions that involve environmental credits. Environmental credits are acquired, internally generated, granted by a regulator or its designee(s), or received in a nonreciprocal transfer that is not a grant from a regulator or its designee(s). Entities use those environmental credits: - a
To settle environmental credit obligations
- b
- c
In a nonreciprocal transfer
- d
To meet voluntary environmental initiatives (referred to as using environmental credits for voluntary purposes).
(P) December 16, 2027; (N) December 16, 2028
818-10-65-1This Topic specifies the financial accounting and reporting requirements for transactions and arrangements involving environmental credits and environmental credit obligations with the objective of providing investors with useful information about the amount, timing, and uncertainty of cash flows arising from those transactions. An entity should consider the rights provided by the environmental credits it obtains and the terms and conditions of the regulatory compliance programs that result in environmental credit obligations when applying this Topic. (P) December 16, 2027; (N) December 16, 2028
818-10-65-1See paragraph 818-10-55-1 for implementation guidance on the application of the scope of this Topic. (P) December 16, 2027; (N) December 16, 2028
818-10-65-1Environmental credits and environmental credit obligations that are within the scope of this Topic are outside the scope of Topic 815 on derivatives and hedging in accordance with paragraph 815-10-15-82B. (P) December 16, 2027; (N) December 16, 2028
818-10-65-1The existence of active markets is not a requirement when determining whether an item that may be an environmental credit is separately transferable in an exchange transaction. Additionally, the length of time that an item is transferable should not be considered for that purpose. In certain instances, an item may only be separately transferable momentarily because an entity retires the item immediately after obtaining it or instructs another party, such as a broker, to do so. That item would be subject to the provisions of this Topic if all other criteria in the environmental credit definition are met. The following represents the transition and effective date information related to Accounting Standards Update No. 2026-02, Environmental Credits and Environmental Credit Obligations (Topic 818): Effective date and early adoption
- a
Public business entities shall apply the pending content that links to this paragraph for annual reporting periods beginning after December 15, 2027, and interim reporting periods within those annual reporting periods.
- b
Entities other than public business entities shall apply the pending content that links to this paragraph for annual reporting periods beginning after December 15, 2028, and interim reporting periods within those annual reporting periods.
- c
Early adoption of the pending content that links to this paragraph is permitted in an interim or annual reporting period in which financial statements have not yet been issued or made available for issuance. If an entity adopts the pending content that links to this paragraph in an interim reporting period, it shall adopt the pending content as of the beginning of the annual reporting period that includes that interim reporting period.
Transition method
- d
An entity shall apply the pending content that links to this paragraph on a retrospective basis through a cumulative-effect adjustment to the opening balance of retained earnings (or other appropriate components of equity or net assets on the balance sheet) as of the beginning of the annual reporting period of adoption, subject to the guidance in (e) through (i). The date of initial application shall be the beginning of the annual reporting period in which the entity first applies the pending content that links to this paragraph.
- e
An entity shall recognize an environmental credit as an asset at the date of initial application of the pending content that links to this paragraph if it is probable at that date that the environmental credit will be used to settle an environmental credit obligation, transferred in an exchange transaction, or used in a nonreciprocal transfer. For all other environmental credits, an entity shall derecognize the carrying amount of those environmental credits at the date of initial application unless those environmental credits are within the scope of (g). In addition, at the date of initial application, an entity shall derecognize the carrying amount of an asset recognized for a nonrefundable deposit made to obtain an environmental credit if it is not probable that the environmental credit will be used to settle an environmental credit obligation, transferred in an exchange transaction, or used in a nonreciprocal transfer. - f
An entity shall measure an environmental credit recognized as an asset at the date of initial application of the pending content that links to this paragraph in accordance with (e) as follows:
- 1
An environmental credit that is classified as a compliance environmental credit at the date of initial application of the pending content that links to this paragraph shall be measured using the entity’s carrying amount of that environmental credit existing at the date of initial application. - 2
An environmental credit that is classified as a noncompliance environmental credit at the date of initial application of the pending content that links to this paragraph shall be measured at the lower of the entity’s carrying amount of the environmental credit existing at the date of initial application and the fair value of the environmental credit at the date of initial application. - 3
Notwithstanding the requirements of (f)(1) and (f)(2), an entity may make an entity-wide election to measure those environmental credits that were internally generated by the entity or received through a grant from a regulator or its designee(s) at the amount of the transaction costs incurred in accordance with paragraph 818-20-30-1. - 4
Notwithstanding the requirements of (f)(2), an entity that elects an accounting policy to subsequently measure a class of eligible noncompliance environmental credits at fair value shall measure those environmental credits at fair value at the date of initial application of the pending content that links to this paragraph.
- g
An entity shall continue to include the cost of environmental credits capitalized as part of another asset accounted for in accordance with another Topic (for example, Topic 330 on inventory) before the date of initial application of the pending content that links to this paragraph as part of the carrying amount of that other asset. - h
An entity shall apply the liability recognition and measurement requirements of Subtopic 818-30 on environmental credit obligations at the date of initial application of the pending content that links to this paragraph. - i
An entity shall apply the pending content in paragraphs and 805-20-30-32 prospectively to transactions accounted for as business combinations occurring after the date of initial application of the pending content that links to this paragraph.
Transition disclosures
- j
An entity shall provide the transition disclosures required by paragraph 250-10-50-1(a), (b)(3), and (c) and paragraph 250-10-50-2. The transition disclosure required by paragraph 250-10-50-1(b)(3) shall be as of the beginning of the annual reporting period of adoption rather than as of the beginning of the earliest period presented.
(P) December 16, 2027; (N) December 16, 2028
818-10-65-1This Subtopic addresses the accounting for an environmental credit. Paragraph 818-20-55-1 provides a flowchart of the recognition and measurement requirements of this Subtopic. (P) December 16, 2027; (N) December 16, 2028
818-10-65-1This Subtopic follows the same Scope and Scope Exceptions as the Overall Subtopic. (P) December 16, 2027; (N) December 16, 2028
818-10-65-1An entity shall recognize an environmental credit as an asset if it is probable that the environmental credit will be used to settle an environmental credit obligation, transferred in an exchange transaction, or used in a nonreciprocal transfer. For all other environmental credits, an entity shall recognize an expense when costs are incurred and is prohibited from including those costs in the carrying amount of another asset accounted for in accordance with another Topic. (P) December 16, 2027; (N) December 16, 2028
818-10-65-1An entity shall recognize an expense for a nonrefundable deposit made to obtain an environmental credit for which it is not probable that the entity will use the environmental credit: - a
To settle an environmental credit obligation
- b
To transfer in an exchange transaction
- c
In a nonreciprocal transfer.
(P) December 16, 2027; (N) December 16, 2028
818-10-65-1See paragraphs for implementation guidance on the application of asset recognition. (P) December 16, 2027; (N) December 16, 2028
818-10-65-1The recognition guidance in paragraphs is not required to be applied at the individual environmental credit level. See paragraph 818-20-55-4 for implementation guidance on the application of this paragraph. (P) December 16, 2027; (N) December 16, 2028
818-10-65-1An environmental credit that is internally generated by an entity or received through a grant from a regulator or its designee(s) shall be initially measured at the transaction costs incurred, if any. See paragraph 818-20-55-5 for implementation guidance on the application of this paragraph. (P) December 16, 2027; (N) December 16, 2028
818-10-65-1Environmental credits other than those measured in accordance with paragraph 818-20-30-1 that are obtained in a transaction initially measured in accordance with another Topic shall follow the requirements of that other Topic. See paragraph 818-20-55-6 for implementation guidance on the application of this paragraph. (P) December 16, 2027; (N) December 16, 2028
818-10-65-1Environmental credits other than those measured in accordance with paragraph 818-20-30-1 or 818-20-30-2 shall be initially measured at cost in accordance with paragraphs . (P) December 16, 2027; (N) December 16, 2028
818-10-65-1Before applying the subsequent measurement requirements of this Subtopic, an entity shall apply the asset recognition reassessment requirements in paragraph 818-20-40-2 at each reporting date. (P) December 16, 2027; (N) December 16, 2028
818-10-65-1An entity shall subsequently measure similar environmental credits recognized as assets using one of the following costing methods: - a
Average cost
- b
First-in, first-out
- c
Specific identification.
(P) December 16, 2027; (N) December 16, 2028
818-10-65-1An entity shall determine at each reporting date whether it is probable that an environmental credit recognized as an asset will be used to settle an environmental credit obligation. If it is probable, the environmental credit shall be classified as a compliance environmental credit and shall not be subsequently remeasured. (P) December 16, 2027; (N) December 16, 2028
818-10-65-1All other environmental credits recognized as assets shall be classified as noncompliance environmental credits and tested for impairment at each reporting date. An entity shall recognize an impairment loss when the carrying value of the noncompliance environmental credit exceeds its fair value. The impairment loss shall be measured as the excess of the carrying value over fair value. Subsequent reversal of a previously recognized impairment loss is prohibited. (P) December 16, 2027; (N) December 16, 2028
818-10-65-1If an environmental credit is reclassified from a compliance environmental credit to a noncompliance environmental credit or vice versa, an entity shall apply the impairment requirements in paragraph 818-20-35-4 before applying the subsequent measurement guidance related to the new classification of the environmental credit. (P) December 16, 2027; (N) December 16, 2028
818-10-65-1An entity shall not amortize an environmental credit. (P) December 16, 2027; (N) December 16, 2028
818-10-65-1Notwithstanding the requirements of paragraphs , an entity may elect an accounting policy by class to subsequently measure a class of eligible (see paragraph 818-20-35-9) noncompliance environmental credits at fair value at each reporting date, with changes in fair value recognized in earnings. An entity should determine what constitutes a class based on its specific facts and circumstances. (P) December 16, 2027; (N) December 16, 2028
818-10-65-1An environmental credit subsequently measured at fair value in accordance with paragraph 818-20-35-7 shall continue to be measured at fair value at each reporting date until that environmental credit is derecognized. See paragraph 818-20-55-8 for implementation guidance on the application of this paragraph. (P) December 16, 2027; (N) December 16, 2028
818-10-65-1To be eligible for subsequent fair value measurement, a noncompliance environmental credit shall be obtained through one of the following: - a
- b
- c
See paragraph 818-20-55-7 for implementation guidance on the application of this paragraph. (P) December 16, 2027; (N) December 16, 2028
818-10-65-1A change in accounting policy to elect fair value measurement shall be subject to the guidance in Topic 250 on accounting changes and error corrections, including the requirements related to a change in accounting policy in an interim period in paragraphs . However, notwithstanding the requirements of paragraph 250-10-45-5, an entity that elects to change its accounting policy to subsequently measure a class of eligible noncompliance environmental credits at fair value shall apply that fair value measurement accounting policy prospectively, with a cumulative-effect adjustment to retained earnings as of the beginning of the annual reporting period in which the change is made. The change shall not be retrospectively applied to prior annual reporting periods. The adjustment to retained earnings shall be determined in accordance with Topic 250 and shall include the difference between the fair value and the carrying amount of all affected noncompliance environmental credits at the beginning of the annual reporting period in which the fair value measurement accounting policy change is made. The initial adoption of an accounting policy for a class of eligible noncompliance environmental credits is not a change in accounting policy subject to the guidance in Topic 250. (P) December 16, 2027; (N) December 16, 2028
818-10-65-1An entity shall derecognize an environmental credit in accordance with Subtopic 610-20 on gains and losses from the derecognition of nonfinancial assets unless a scope exception from that Subtopic applies. For example, a nonfinancial asset in a contract with a customer shall be derecognized in accordance with Topic 606 on revenue from contracts with customers. (P) December 16, 2027; (N) December 16, 2028
818-10-65-1At each reporting date, an entity shall reassess whether environmental credits shall continue to be recognized as assets in accordance with paragraph 818-20-25-1. If an entity determines that it is no longer probable that an environmental credit will be used to settle an environmental credit obligation, transferred in an exchange transaction, or used in a nonreciprocal transfer, the entity shall derecognize the environmental credit through earnings. (P) December 16, 2027; (N) December 16, 2028
818-10-65-1An entity is prohibited from recognizing an environmental credit as an asset if the entity previously determined that the environmental credit was not probable of being used to settle an environmental credit obligation, transferred in an exchange transaction, or used in a nonreciprocal transfer. Therefore, an environmental credit previously derecognized or never recognized as an asset shall not subsequently be recognized as an asset. (P) December 16, 2027; (N) December 16, 2028
818-10-65-1An entity that presents a classified balance sheet shall classify environmental credits reasonably expected to be transferred in an exchange transaction, used in a nonreciprocal transfer, or remitted to a regulator within one year (or the operating cycle of the business, if longer) as current assets. All other environmental credits shall be classified as noncurrent assets. (P) December 16, 2027; (N) December 16, 2028
818-10-65-1For annual reporting periods, an entity shall disclose the types of environmental credits owned by the entity and all of the following: - a
How the entity obtained the environmental credits (acquired, granted, internally generated, or received in a nonreciprocal transfer) - b
How the entity intends to use the environmental credits (to settle environmental credit obligations, to transfer in an exchange transaction, to use in a nonreciprocal transfer, or to meet voluntary environmental initiatives) - c
The accounting policies used to account for the environmental credits in accordance with Topic 235 on notes to financial statements (for example, whether the environmental credits are subsequently measured using the average cost; first-in, first-out; or specific identification costing methods) - d
Significant estimates and judgments used in applying the guidance.
(P) December 16, 2027; (N) December 16, 2028
818-10-65-1For annual reporting periods, an entity shall disclose, if not separately presented on the entity’s balance sheet, the current and noncurrent assets portion of both of the following: - a
- b
An entity also shall disclose the line item or items on the balance sheet that include the current asset and noncurrent assets portion of the amounts in (a) and (b).
(P) December 16, 2027; (N) December 16, 2028
818-10-65-1For annual reporting periods, an entity shall disclose all of the following: - a
Total expense recognized for environmental credits not initially recognized as an asset in accordance with paragraph 818-20-25-1 or subsequently derecognized in accordance with paragraph 818-20-40-2. - b
Total impairment expense recognized during the reporting period, the nature of the environmental credits that were impaired, and a description of the facts and circumstances giving rise to the impairment.
- c
The line item or items in the income statement that include the amounts in (a) and (b).
See paragraphs for additional disclosure requirements. (P) December 16, 2027; (N) December 16, 2028
818-10-65-1For annual reporting periods, if as a result of applying the guidance in paragraphs and paragraph 818-20-40-2 an entity changes its use or intended use of its environmental credits, it shall disclose the nature of that change as of the date that it occurs and the related effect on earnings on that date, if any. (P) December 16, 2027; (N) December 16, 2028
818-10-65-1An entity shall apply the fair value disclosure requirements in Topic 820 for any fair value measurements made in accordance with this Subtopic. (P) December 16, 2027; (N) December 16, 2028
818-10-65-1See paragraph 818-20-55-14 for an illustration of the quantitative disclosures required by this Subtopic. (P) December 16, 2027; (N) December 16, 2028
818-10-65-1The following flowchart illustrates the accounting requirements for environmental credits. The flowchart is a supplement to the guidance in this Subtopic, and it should not be interpreted to change any requirements of this Topic or be considered a substitute for those requirements. ![](\"/asc-img/GUID-0C65DE53-5368-443F-9DF3-E479655BD2EE-low.gif\")
At the date the credit is obtained Is it probable that the environmental credit (EC) will be used to settle an environmental credit obligation (ECO), transferred in an exchange transaction, or used in a nonreciprocal transfer (paragraph 818-20-25-1)? \"No \" \"Recognize the cost of the EC as an expense as incurred (paragraph 818-20-25-1).\" Yes Recognize an asset, classify, and measure as a compliance environmental credit or noncompliance environmental credit in accordance with paragraphs 818-20-25-2 and 818-20-30-1 through 30-3. At each reporting date For all ECs recognized as assets, is it still probable that the EC will be used to settle an ECO, transferred in an exchange transaction, or used in a nonreciprocal transfer (paragraph 818-20-35-1)? \"No \" \"Derecognize the carrying amount of the EC through earnings (paragraph 818-20-40-2).\" Yes Is it probable that the EC will be used to settle an ECO (paragraph 818-20-35-3)? Yes No \"EC is classified as a compliance environmental credit and is not remeasured (no impairment testing)1,2 (paragraph 818-20-35-3).\" \"EC is classified as a noncompliance environmental credit and is tested for impairment1,2 (paragraph 818-20-35-4).\" \"1 If the classification of the EC changes from a previously determined classification, the EC is tested for impairment before it is reclassified (paragraph 818-20-35-5). 2 The flowchart assumes an entity has not made an accounting policy election to remeasure noncompliance environmental credits at fair value at each reporting period (paragraph 818-20-35-7).\"
(P) December 16, 2027; (N) December 16, 2028
818-10-65-1Paragraph 818-20-25-1 requires that an entity recognize an environmental credit as an asset if it is probable that the environmental credit will be used to settle an environmental credit obligation, transferred in an exchange transaction, or used in a nonreciprocal transfer. That assessment of probability is a collective assessment whereby the evaluation is made on the probability of any of those events occurring. For example, an entity purchases an environmental credit that it will use to either settle an environmental credit obligation or transfer in an exchange transaction. The entity determines that there is a 50 percent likelihood that the environmental credit will be used to settle an environmental credit obligation and a 50 percent likelihood that the environmental credit will be transferred in an exchange transaction. Therefore, an asset would be recognized because collectively the likelihood of those outcomes occurring is probable. (P) December 16, 2027; (N) December 16, 2028
818-10-65-1An entity does not need to have recognized an environmental credit obligation liability in accordance with Subtopic 818-30 to determine that it is probable that the entity will use an environmental credit to settle an environmental credit obligation because the liability may be recognized in a future period. In most instances, an entity will be able to readily determine whether it is probable that an environmental credit will be used to settle an environmental credit obligation, transferred in an exchange transaction, or used in a nonreciprocal transfer. The following factors may be helpful in determining whether it is probable that an environmental credit will be used to settle an environmental credit obligation, transferred in an exchange transaction, or used in a nonreciprocal transfer: - a
The entity’s purpose for acquiring the environmental credit
- b
The quantity of environmental credits the entity owns compared with existing and expected environmental credit obligations
- c
- d
The entity’s past uses of environmental credits
- e
Whether the entity would be committed to transfer in an exchange transaction any environmental credits in excess of those needed to satisfy an environmental credit obligation
- f
An entity’s internal emission reduction initiatives.
(P) December 16, 2027; (N) December 16, 2028
818-10-65-1In accordance with paragraph 818-20-25-5, an entity is not required to apply the recognition requirements in paragraphs at the individual environmental credit level. For example, if an entity acquires 1,000 Class A renewable energy certificates, it evaluates whether it is probable that the renewable energy certificates will be used to settle an environmental credit obligation, transferred in an exchange transaction, or used in a nonreciprocal transfer. The entity determines that it is probable that it will use 900 of those renewable energy certificates to settle an environmental credit obligation and that it is not probable that it will use the remaining 100 renewable energy certificates to settle an environmental credit obligation, transfer the renewable energy certificates in an exchange transaction, or use the renewable energy certificates in a nonreciprocal transfer. Therefore, the entity recognizes 900 Class A renewable energy certificates as environmental credit assets, and the remaining 100 Class A renewable energy certificates are expensed as incurred. (P) December 16, 2027; (N) December 16, 2028
818-10-65-1Paragraph 818-20-30-1 requires that an entity initially measure an internally generated environmental credit or an environmental credit received through a grant from a regulator or its designee(s) at the transaction costs incurred, if any. Transaction costs include costs such as those that are necessary to validate, register, or authenticate an environmental credit so that the environmental credit may be used to settle an environmental credit obligation, transferred in an exchange transaction, or used in a nonreciprocal transfer. If an entity does not incur transaction costs, the initial measurement of those environmental credits should be zero. That initial measurement should not affect whether an asset is recognized in accordance with paragraph 818-20-25-1 or whether the environmental credit is classified as a compliance environmental credit or a noncompliance environmental credit in accordance with paragraph 818-20-25-2. For example, a renewable energy certificate granted to an entity by a regulator that is determined to be probable of being used to settle an environmental credit obligation when received would be recognized as an asset and classified as a compliance environmental credit at initial recognition. That compliance environmental credit would be measured at zero if the entity does not incur transaction costs. Additionally, when that environmental credit is used to measure the funded portion of an environmental credit obligation liability, the liability also would be measured at zero. (P) December 16, 2027; (N) December 16, 2028
818-10-65-1Paragraph 818-20-30-2 requires an entity that obtains an environmental credit in a transaction initially measured in accordance with another Topic to follow the initial measurement requirements of that other Topic. For example: - a
A renewable energy certificate received as consideration in a contract that is within the scope of Topic 606 on revenue from contracts with customers should be initially measured in accordance with paragraphs . - b
A carbon offset or renewable energy certificate received in a nonreciprocal transfer from an investee in a transaction that is within the scope of Topic 845 on nonmonetary transactions should be initially measured in accordance with that Topic. - c
An environmental credit received in a nonreciprocal transfer between entities under common control should initially be measured in accordance with paragraphs .
(P) December 16, 2027; (N) December 16, 2028
818-10-65-1Paragraphs permit an entity, as an accounting policy election, to subsequently measure a class of eligible noncompliance environmental credits at fair value at each reporting date, with changes recognized in earnings. An entity should determine what constitutes a class based on its facts and circumstances. Eligible noncompliance environmental credits are those obtained in an exchange transaction, received in a nonreciprocal transfer that is not a grant from a regulator or its designee(s), or acquired in a business combination. Environmental credits generated by the entity or received through a grant from a regulator (or its designee(s)) are ineligible for fair value measurement. For example, an oil refinery acquires 100 renewable identification numbers in an exchange transaction and is granted 20 similar renewable identification numbers from a regulator. The oil refinery determines that it is not probable that it will use the environmental credits to settle an environmental credit obligation because the entity intends to transfer in an exchange transaction all 120 of those noncompliance environmental credits. The 100 acquired renewable identification numbers are eligible for fair value measurement, and the 20 granted renewable identification numbers are not. (P) December 16, 2027; (N) December 16, 2028
818-10-65-1Notwithstanding the requirements of paragraphs , an environmental credit subsequently measured at fair value in accordance with an entity’s accounting policy election should continue to be measured at fair value at each reporting date until the environmental credit is derecognized. For example, assume that an entity elects an accounting policy to subsequently measure a class of 600 eligible noncompliance renewable identification numbers at fair value at each reporting date. If the entity subsequently determines that it is probable that a portion (or all) of those 600 noncompliance renewable identification numbers will be used to settle environmental credit obligations, those renewable identification numbers would be reclassified as compliance environmental credits and would continue to be measured at fair value at each reporting date until derecognized. Therefore, measuring those compliance environmental credits at fair value would affect the measurement of the related funded portion of an entity’s environmental credit obligation liability measured in accordance with paragraph 818-30-30-2. (P) December 16, 2027; (N) December 16, 2028
818-10-65-1Examples 1 through 4 illustrate the application of the recognition and measurement requirements of this Subtopic. (P) December 16, 2027; (N) December 16, 2028
818-10-65-1An industrial manufacturing entity is subject to a cap-and-trade regulatory compliance program that mandates the remittance of emissions allowances to a regulator by March 31, 20X5, based on the amount of the entity’s emissions for a compliance year ending on December 31, 20X4. On January 1, 20X4, the entity purchases 10,000 emissions allowances at a regulator-sponsored auction for $1,000,000 ($100 per allowance) and pays $25,000 in auction fees. At initial recognition, the entity determines that it is probable that it will use those emissions allowances to settle its 20X4 cap-and-trade environmental credit obligation because it estimates that its emissions during 20X4 will require the remittance of 15,000 emissions allowances. The entity classifies the 10,000 emissions allowances as compliance environmental credits, initially measured at $1,025,000, in accordance with paragraph 818-20-30-3. Those emissions allowances are not remeasured if they continue to be classified, at each reporting date, as compliance environmental credits. (P) December 16, 2027; (N) December 16, 2028
818-10-65-1A cloud-based software developer publicly announces its voluntary initiative to be carbon neutral for the fiscal year ending December 31, 20X4. The carbon neutral initiative of the cloud-based software developer does not represent an environmental credit obligation because it does not result from a regulatory compliance obligation under existing or enacted laws, statutes, or ordinances. Specifically, this voluntary initiative does not establish an environmental credit obligation. The entity purchases 1,000 carbon offsets for $50,000 on March 1, 20X4, to meet its voluntary initiative. Because it is not probable that the entity will use the acquired carbon offsets to settle an environmental credit obligation, transfer those carbon offsets in an exchange transaction, or use those carbon offsets in a nonreciprocal transfer, the entity recognizes the $50,000 as an expense as incurred on March 1, 20X4, in accordance with paragraph 818-20-25-1. (P) December 16, 2027; (N) December 16, 2028
818-10-65-1An entity that owns a tree farm uses a nationally accredited third-party registry to certify the tree farm and issue carbon offsets. During January 20X4, the entity’s tree farm activities resulted in 30,000 carbon offsets issued to the entity by the registry. The entity pays $1 per carbon offset as an administrative fee to the registry. The entity determines that it is not probable that it will use the carbon offsets to settle an environmental credit obligation because it intends to sell all of the carbon offsets created as a result of its tree farm activities. The entity recognizes the carbon offsets as assets and classifies them as noncompliance environmental credits. Those noncompliance environmental credits are initially measured at $30,000, the amount of the transaction costs, in accordance with paragraph 818-20-30-1. In accordance with paragraph 818-20-35-9, an entity’s internally generated environmental credits are not eligible for the fair value measurement accounting policy election. (P) December 16, 2027; (N) December 16, 2028
818-10-65-1A U.S. oil refinery is subject to a regulatory compliance program represented to control fuel emissions. The program requires fuel produced by the entity to include a minimum volume of fuel generated from renewable sources. The entity refines crude oil and conventional biofuel (renewable). During October 20X4, the entity refines 100,000 gallons of conventional biofuel, which results in 100,000 renewable identification numbers granted to the entity by the regulator in accordance with the program. The entity incurred no transaction costs to obtain the renewable identification numbers. The entity determines that it is probable that the renewable identification numbers will be used to settle an environmental credit obligation, transferred in an exchange transaction, or used in a nonreciprocal transfer and recognizes an asset that is initially measured at zero, in accordance with paragraph 818-20-30-1. Environmental credits received through a grant by a regulator or its designee(s) are not eligible for the fair value measurement accounting policy election in accordance with paragraph 818-20-35-9. (P) December 16, 2027; (N) December 16, 2028
818-10-65-1The following is an illustration of the quantitative disclosures required by paragraphs for annual reporting periods. The format in the illustration is not a requirement, and the information should be formatted in the most understandable manner for an entity’s specific circumstances. This illustration does not illustrate comparative period disclosures. ![](\"/asc-img/GUID-7C921BE8-2DB2-4E2A-BCBC-04E7F9CE514D-low.gif\")
As of December 31, 20X4 Environmental Credit Carrying Amount Classification Current portion $5,100 Compliance Current portion 500 Noncompliance Noncurrent portion 3,800 Compliance Noncurrent portion - Noncompliance Total $9,400 Environmental Credit Expense Information For the Year Ended December 31, 20X4 Expense for voluntary environmental credit costs(a) $118 Impairment expense(b) $15 (a) Expense for voluntary environmental credit costs is included in other expenses in the income statement. (b) Impairment expense is recorded because of a decline in the fair market value of Project A carbon offsets. Impairment expense is included in cost of goods sold in the income statement. Change in Use of Environmental Credit Information For the Year Ended December 31, 20X4 Expense for voluntary environmental credit costs(a) $100 (a) Certain compliance environmental credits were expensed because it was no longer probable that the credits would be used to settle an ECO, transferred in an exchange transaction, or used in a nonreciprocal transfer.
(P) December 16, 2027; (N) December 16, 2028
818-10-65-1This Subtopic follows the same Scope and Scope Exceptions as the Overall Subtopic.(P) December 16, 2027; (N) December 16, 2028
818-10-65-1An entity shall recognize a liability when events that occur on or before a reporting date result in an environmental credit obligation. When evaluating whether a liability should be recognized, an entity shall determine whether environmental credits would be due assuming that the reporting date is the end of the regulatory compliance period, regardless of whether the regulatory compliance period ends after the reporting date. An entity shall recognize the costs associated with an environmental credit obligation liability either in earnings or, if appropriate, as part of another asset accounted for in accordance with another Topic.(P) December 16, 2027; (N) December 16, 2028
818-10-65-1See paragraphs for implementation guidance on the application of recognition requirements.(P) December 16, 2027; (N) December 16, 2028
818-10-65-1An entity shall apply the recognition and measurement requirements of Subtopic 818-20 before applying the measurement requirements of this Subtopic on environmental credit obligations. An environmental credit obligation liability may have a funded portion and an unfunded portion to be measured in accordance with paragraphs 818-30-30-2 and 818-30-30-3, respectively.(P) December 16, 2027; (N) December 16, 2028
818-10-65-1The funded portion of an environmental credit obligation liability is the portion for which an entity has associated compliance environmental credits. An entity shall measure the funded portion using the carrying amount of the compliance environmental credits expected to be derecognized upon settlement of the liability using costing methods consistent with those applied when subsequently measuring its compliance environmental credits in accordance with Subtopic 818-20. When measuring the funded portion of an environmental credit obligation liability, an entity shall not consider any of the following: - a
- b
- c
Environmental credits that were previously derecognized in accordance with paragraph 818-20-40-2.
(P) December 16, 2027; (N) December 16, 2028
818-10-65-1If an entity does not have sufficient compliance environmental credits to satisfy an environmental credit obligation liability at a reporting date, the unfunded portion of its environmental credit obligation liability shall be measured using the fair value of the environmental credits necessary to settle that portion of the liability at the reporting date, unless an entity intends to settle (or partially settle) the unfunded portion by remitting any of the following: - a
Cash. An entity that intends to settle the unfunded portion by remitting cash shall measure the unfunded portion using the cash settlement amount specified by the regulatory compliance program.
- b
Environmental credits that will be received before the settlement of the liability from either an existing unconditional purchase commitment for a fixed quantity of environmental credits at a fixed price or an unconditional right to receive a fixed quantity of environmental credits as part of a regulatory compliance program or contract for which environmental credits will be received as consideration. For purposes of applying the requirements in this paragraph, an unconditional right exists when an entity has satisfied all performance requirements of the regulatory compliance program or contract necessary to receive environmental credits as of the reporting date. An entity that intends to settle the unfunded portion using environmental credits from those unconditional commitments or rights shall measure the unfunded portion using the estimated cost basis of the environmental credits to be obtained (which may differ from the fixed price per the contract).
(P) December 16, 2027; (N) December 16, 2028
818-10-65-1An entity shall not consider expected future activities that may increase, reduce, or eliminate its environmental credit obligation liability when applying paragraph 818-30-30-3. (P) December 16, 2027; (N) December 16, 2028
818-10-65-1See paragraphs for implementation guidance on the application of initially measuring environmental credit obligation liabilities. (P) December 16, 2027; (N) December 16, 2028
818-10-65-1At each reporting date, an entity shall apply the initial measurement guidance in paragraphs and recognize any changes in an environmental credit obligation liability through earnings or as part of another asset accounted for in accordance with another Topic as required by paragraph 818-30-25-1. (P) December 16, 2027; (N) December 16, 2028
818-10-65-1An entity that presents a classified balance sheet shall classify environmental credit obligation liabilities reasonably expected to be settled within one year (or the operating cycle of the business used for applying paragraph 818-20-45-1, if longer) as a current liability. All other environmental credit obligation liabilities shall be classified as noncurrent liabilities. (P) December 16, 2027; (N) December 16, 2028
818-10-65-1An entity shall present any changes in an environmental credit obligation liability in the income statement in a manner consistent with the recognition and measurement of that liability. (P) December 16, 2027; (N) December 16, 2028
818-10-65-1An entity shall present any gain or loss recognized upon derecognition of an environmental credit obligation liability in the income statement in a manner consistent with the recognition and measurement of that liability. (P) December 16, 2027; (N) December 16, 2028
818-10-65-1For annual reporting periods, an entity shall disclose all of the following about regulatory compliance programs that result in the entity’s environmental credit obligation liabilities: - a
The activities or events that result in environmental credit obligation liabilities under those programs, including the nature and timing of settlement provisions
- b
The accounting policies used to account for the environmental credit obligations in accordance with Topic 235 on notes to financial statements - c
How the unfunded portion of an environmental credit obligation liability is measured in accordance with paragraph 818-30-30-3 - d
Significant estimates and judgments used in applying the guidance.
(P) December 16, 2027; (N) December 16, 2028
818-10-65-1For annual reporting periods, if not separately presented on an entity’s balance sheet, an entity shall disclose the current and noncurrent portions of both of the following:- a
The funded portion of an environmental credit obligation liability
- b
The unfunded portion of an environmental credit obligation liability.
An entity also shall disclose the line item or items on the balance sheet that include the current and noncurrent portions of amounts in (a) and (b).
(P) December 16, 2027; (N) December 16, 2028
818-10-65-1For annual reporting periods, an entity shall disclose the total expense recognized for environmental credit obligation liabilities during the reporting period and the line item in the income statement that includes that amount. See paragraphs for additional disclosure requirements. (P) December 16, 2027; (N) December 16, 2028
818-10-65-1For annual reporting periods, an entity shall disclose both of the following: - a
The total costs associated with environmental credit obligation liabilities that are capitalized in the carrying amount of another asset during the reporting period in accordance with another Topic
- b
A description of the other asset.
(P) December 16, 2027; (N) December 16, 2028
818-10-65-1An entity shall apply the fair value disclosure requirements in Topic 820 for any fair value measurements made in accordance with this Subtopic. (P) December 16, 2027; (N) December 16, 2028
818-10-65-1See paragraph 818-30-55-21 for an illustration of the quantitative disclosures required by this Subtopic. (P) December 16, 2027; (N) December 16, 2028
818-10-65-1The following flowchart illustrates the accounting requirements of this Subtopic for environmental credit obligations. The flowchart is a supplement to the guidance in this Subtopic. It should not be interpreted to change any requirements of this Topic or be considered a substitute for those requirements.![](\"/asc-img/GUID-C7A1B943-AF39-4A5E-AF2F-F0FF2AC37AF5-low.gif\")
Have events occurred on or before the reporting date that result in an environmental credit obligation (ECO) liability (paragraph 818-30-25-1)? \"No\" ECO measurement requirements are not applicable. Yes Recognize an ECO liability and measure the liability as follows: Funded Portion Unfunded Portion Measure the funded portion of the ECO liability using the carrying amount of compliance environmental credits at the reporting date (paragraph 818-30-30-2). \"Measure the unfunded portion using the fair value of the environmental credits necessary to settle that portion at the reporting date (paragraph 818-30-30-3), unless:\" The entity intends to settle the unfunded portion in cash. The entity intends to settle the unfunded portion using environmental credits from either (a) an existing unconditional purchase commitment (fixed quantity at a fixed price) or (b) an unconditional right to receive a fixed quantity of environmental credits as part of a regulatory compliance program or contract for which environmental credits will be received as consideration. Measure the unfunded portion using the cash settlement amount specified by the regulatory compliance program (paragraph 818-30-30-3(a)). Measure the unfunded portion using the estimated cost basis of the environmental credits to be obtained (paragraph 818-30-30-3(b)).
(P) December 16, 2027; (N) December 16, 2028
818-10-65-1In some regulatory compliance programs, the qualifying events or activities that trigger an obligation to remit an environmental credit (which is often emissions as they occur) are established and specified by the program. In those programs, an entity typically cannot reduce the quantity of environmental credits that it is obligated to remit to the regulator at a point in time through future performance. For those programs, an entity should recognize an environmental credit obligation liability upon the occurrence of each qualifying event or activity. For example, if a utility company is required to remit one renewable energy certificate for every one megawatt-hour of electricity delivered to customers, the entity would recognize an environmental credit obligation liability for the obligation to remit one renewable energy certificate upon the delivery of one megawatt-hour to a customer. (P) December 16, 2027; (N) December 16, 2028
818-10-65-1In other regulatory compliance programs that result in environmental credit obligations, an entity is obligated to remit environmental credits to a regulator after it exceeds an established threshold of emissions. After exceeding the established threshold, each qualifying activity results in an incremental obligation to remit an environmental credit to the regulator at the settlement date specified by the program. For example, a regulatory compliance program obligates an entity to remit one emissions allowance for each metric ton of greenhouse gas emitted over 1,000 metric tons. An entity subject to that program should recognize an environmental credit obligation liability after its emissions exceed 1,000 metric tons. Because the entity is not obligated to remit an environmental credit until the threshold is exceeded, a liability should not be recognized before excess emissions occur. Therefore, when the entity emits above the 1,000 metric ton threshold, it should recognize an environmental credit obligation liability for each emissions allowance due thereafter. (P) December 16, 2027; (N) December 16, 2028
818-10-65-1Some regulatory compliance programs determine an entity’s environmental credit obligation by considering activities over a period of time. Under those programs, an entity’s future performance or actions may increase, reduce, or eliminate the need to remit environmental credits to a regulator at the settlement date. For those regulatory compliance programs, an entity should recognize an environmental credit obligation liability at a reporting date when activities or events occurring on or before that date obligate the entity to remit an environmental credit to the regulator assuming that the reporting date was the end of the compliance period. This assumption should be applied regardless of whether the regulatory compliance period ends after the reporting date. For example, consider an automotive manufacturer subject to a regulatory compliance program that requires that an entity remit environmental credits if the fuel efficiency of vehicles sold over a multiyear compliance period does not satisfy a benchmark threshold for that compliance period. Under those programs, an entity may sell vehicles during a reporting period that indicates that an environmental credit obligation liability exists at one reporting date that can be reduced or eliminated upon future sales of more fuel-efficient vehicles and before the compliance period ends. The entity should recognize an environmental credit obligation liability at the reporting date based on the facts and circumstances existing at that date. An entity should not forecast future activities or events that may increase, reduce, or eliminate the need to remit environmental credits to a regulator at the settlement date when determining whether it should recognize an environmental credit obligation liability. (P) December 16, 2027; (N) December 16, 2028
818-10-65-1When applying paragraph 818-30-30-2 for the measurement of the funded portion of an environmental credit obligation liability, an entity should consider only compliance environmental credits recognized as assets at the reporting date, not those credits that will (or may) be obtained in future periods. (P) December 16, 2027; (N) December 16, 2028
818-10-65-1In accordance with paragraph 818-30-30-3(b), if an entity intends to settle the unfunded portion of an environmental credit obligation liability using environmental credits to be obtained before the settlement date through an unconditional purchase commitment for a fixed quantity of environmental credits at a fixed price that exists at the reporting date, that liability should be measured using the estimated cost basis of the environmental credits to be obtained. For example, a contract specifying that an entity will purchase 10,000 renewable energy certificates each year for the next 5 years at a fixed price of $20,000 ($2 per renewable energy certificate) per year may be considered when measuring the unfunded portion. If the entity intends to settle the unfunded portion of an environmental credit obligation liability using environmental credits to be obtained under that commitment before the settlement date, that unfunded portion would be measured using a cost basis of $2 per renewable energy certificate. However, if those renewable energy certificates are obtained as part of a bundled arrangement (for example, a power purchase arrangement) that includes the related energy, the estimated cost basis of the environmental credits to be obtained may differ from the fixed price per the contract because the amount allocated to that renewable energy certificate in accordance with Subtopic 805-50 on asset acquisitions may be different from the fixed price per the contract. In that scenario, an entity would measure the environmental credit obligation liability using the estimated cost basis of the renewable energy certificates to be obtained based on the estimated amount to be allocated to the renewable energy certificates in accordance with Subtopic 805-50. (P) December 16, 2027; (N) December 16, 2028
818-10-65-1Also in accordance with paragraph 818-30-30-3(b), if an entity has an unconditional right to receive a fixed quantity of environmental credits either from a regulator at a future date as part of a regulatory compliance program or as part of a contract for which the environmental credits are received as consideration, it should consider those environmental credits when measuring the unfunded portion of an environmental credit obligation liability if it intends to settle the obligation by remitting those credits. For example, if an entity is subject to a cap-and-trade program that specifies that the entity has an unconditional right on December 31, 20X4, to receive 1,000 emissions allowances on March 15, 20X5, the entity may consider those environmental credits to be received at a later date when measuring the unfunded portion if it intends to settle its environmental credit obligation by remitting those credits. That right would not be considered unconditional if the future grant is contingent on the entity’s future performance, including continuing to conduct business in the program’s jurisdiction after the reporting date. For example, if an entity subject to a cap-and-trade program specifying that an entity subject to the program as of December 31, 20X4, will receive 1,000 emissions allowances on March 15, 20X5, if the entity continues to operate in the program’s jurisdiction on that date, the entity should not consider those environmental credits when measuring the unfunded portion before March 15, 20X5. (P) December 16, 2027; (N) December 16, 2028
818-10-65-1Examples 1 through 3 illustrate the application of the environmental credit obligation liability recognition and measurement requirements in this Subtopic.(P) December 16, 2027; (N) December 16, 2028
818-10-65-1A manufacturing entity is subject to a cap-and-trade program that obligates the entity to remit emissions allowances to a regulator at a future settlement date with the quantity due determined based on greenhouse gas emissions for a calendar year. On March 31, 20X4, the entity determines that its 20X4 emissions to date would obligate it to remit 10,000 emissions allowances assuming that the March 31, 20X4 reporting date represents the end of the program’s compliance period. On that date, the entity has 20,000 emissions allowances accounted for as compliance environmental credits with a carrying amount of $206,000. The entity subsequently measures its emissions allowances using the first-in, first-out costing method in accordance with paragraph 818-20-35-2. Those 20,000 emissions allowances comprise 8,000 acquired in March 20X3 for $96,000 ($12 per allowance Vintage Year 20X2), 7,000 acquired in August 20X3 for $70,000 ($10 per allowance Vintage Year 20X3), and 5,000 acquired in January 20X4 for $40,000 ($8 per allowance Vintage Year 20X4). For purposes of this Example, vintage year refers to the year that the emissions allowances were issued or sold at auctions by the regulator of the cap-and-trade program. (P) December 16, 2027; (N) December 16, 2028
818-10-65-1The entity first applies the asset reassessment requirements in paragraph 818-20-35-3 and determines that all 20,000 emissions allowances continue to be probable of being used to settle environmental credit obligation liabilities. Therefore, those emissions allowances remain classified and accounted for as compliance environmental credits. In accordance with paragraph 818-30-30-2, the entity measures the environmental credit obligation liability for the 10,000 emissions allowances using the carrying amount of compliance environmental credits recognized on March 31, 20X4. When assessing the carrying amount of the related compliance environmental credits, the entity considers the costing method applied in accordance with the requirements in paragraph 818-20-35-2 and uses that method to determine its best estimate of the carrying amount of compliance environmental credits. (P) December 16, 2027; (N) December 16, 2028
818-10-65-1Therefore, the carrying amount of the 10,000 credits expected to be used to satisfy the regulatory compliance program is $116,000 (the sum of the 8,000 Vintage Year 20X2 allowances at $12 per allowance plus 2,000 of the Vintage Year 20X3 allowances at $10 per allowance). The entity recognizes an environmental credit obligation liability on March 31, 20X4, for 10,000 emissions allowances measured at $116,000. (P) December 16, 2027; (N) December 16, 2028
818-10-65-1Assume the same facts and circumstances as Case A except that the entity’s 20X4 emissions to date would obligate it to remit 14,000 emissions allowances. Additionally, assume that the entity subsequently measures the emissions allowances using an average cost method in accordance with paragraph 818-20-35-2. Vintage Years 20X2 through 20X4 emissions allowances are accepted methods of settlement for 20X4 cap-and-trade obligations, and the entity accounts for them as a single cost pool. (P) December 16, 2027; (N) December 16, 2028
818-10-65-1Regardless of the specific emissions allowances that the entity intends to transfer to the regulator, the entity will derecognize the environmental credits remitted at their average cost based on the entity’s previously elected accounting policy. Average cost is one of the three allowable costing methods that an entity can use for subsequently measuring similar environmental credits in accordance with paragraph 818-20-35-2. On March 31, 20X4, the entity determines that the average cost is $10.30 per emissions allowance (the total cost of the emissions allowances of $206,000 divided by the total number of emissions allowances of 20,000). On that basis, the environmental credit obligation liability recognized for the 14,000 emissions allowances necessary to satisfy the liability at the reporting date is $144,200 in accordance with paragraph 818-30-30-2 (the average cost of $10.30 per emissions allowance multiplied by 14,000 emissions allowances necessary to satisfy the liability). (P) December 16, 2027; (N) December 16, 2028
818-10-65-1An automotive manufacturer selling vehicles is subject to a regulatory compliance program represented to control greenhouse gas emissions by establishing minimum levels of average fuel economy standards for vehicles sold. The compliance period begins on January 1, 20X4, and ends on December 31, 20X7. The entity is obligated to remit 1 environmental credit per vehicle for each mile per gallon that the average fuel economy of all of its vehicles sold within a designated model year is less than 32 miles per gallon. The regulator grants the entity 1 environmental credit per vehicle for every mile per gallon that the average fuel economy of all vehicles sold exceeds 32 miles per gallon. The entity has not executed an unconditional purchase commitment to acquire environmental credits, and the regulatory compliance program does not permit an alternative cash settlement mechanism. The entity determines that it intends to settle the obligation by acquiring the necessary environmental credits from another automotive manufacturer. (P) December 16, 2027; (N) December 16, 2028
818-10-65-1For the 3 months ending March 31, 20X4, the entity sold 100,000 20X4 model year vehicles with an average fuel economy of 30 miles per gallon. On that basis, the entity would be obligated to remit 200,000 environmental credits if the compliance period ended on March 31, 20X4. In accordance with paragraph 818-30-25-1, the entity should recognize an environmental credit obligation liability on that date. The liability is initially measured in accordance with paragraphs . On March 31, 20X4, the fair value of those environmental credits is $4 per credit. Therefore, the entity recognizes an unfunded environmental credit obligation liability of $800,000 on that date. (P) December 16, 2027; (N) December 16, 2028
818-10-65-1When measuring its March 31, 20X4 environmental credit obligation liability, the entity should not consider any activities or events that may increase, reduce, or eliminate the number of environmental credits that would be required at the reporting date. For example, if the entity intends to manufacture and sell more fuel-efficient vehicle models that result in environmental credits being granted to the entity before the settlement date, it should not consider the receipt of those expected future environmental credits when measuring the existing environmental credit obligation liability.(P) December 16, 2027; (N) December 16, 2028
818-10-65-1Assume the same facts and circumstances as in Case A except that the regulatory compliance program permits an alternative cash settlement mechanism that the entity intends to use because of a shortage of environmental credits associated with the program in the market. That alternative cash settlement mechanism allows the entity to settle its environmental credit obligation by paying $4.25 per environmental credit due to the regulator. In accordance with paragraph 818-30-30-3(a) and because the entity intends to use the alternative settlement mechanism, the entity recognizes an environmental credit obligation liability of $850,000 on March 31, 20X4. (P) December 16, 2027; (N) December 16, 2028
818-10-65-1Assume the same facts and circumstances as in Case A except that during 20X3 the entity executed an unconditional purchase commitment for 500,000 environmental credits at $3 per credit to be received before the settlement date. On March 31, 20X4, the entity intends to settle its environmental credit obligation liability using environmental credits to be obtained from that purchase commitment. In accordance with paragraph 818-30-30-3(b), the entity recognizes an environmental credit obligation liability of $600,000. (P) December 16, 2027; (N) December 16, 2028
818-10-65-1An e-commerce retailer is subject to an annual regulatory compliance program that obligates it to remit 1 environmental credit for each metric ton of emissions in excess of 1,000,000 metric tons. The regulatory compliance program ends on December 31, 20X4. As of June 30, 20X4, the entity’s year-to-date emissions are 750,000 metric tons. At that date, the entity expects to emit 750,000 additional metric tons by December 31, 20X4. On that basis, the entity estimates that by the end of the regulatory compliance program, it will be obligated to remit 500,000 environmental credits to the regulator for its excess emissions. On June 30, 20X4, the entity does not recognize an environmental credit obligation liability because it is not obligated to remit any environmental credits assuming that date was the end of the compliance period. An environmental credit obligation liability is recognized under this program only after emissions exceed 1,000,000 metric tons. (P) December 16, 2027; (N) December 16, 2028
818-10-65-1An entity publicly states its voluntary initiative to reduce its net annual emissions by 50 percent by 20X0 by acquiring carbon offsets in addition to making infrastructure investments and process changes. Because the entity’s statement does not arise from a regulatory compliance obligation under existing or enacted laws, statutes, or ordinances, it is not an environmental credit obligation accounted for in accordance with this Subtopic. (P) December 16, 2027; (N) December 16, 2028
818-10-65-1The following is an illustration of the quantitative disclosures required by paragraphs for annual reporting periods. The format in the illustration is not a requirement, and the information should be formatted in the most understandable manner for an entity’s specific circumstances. This illustration does not illustrate comparative period disclosures. ![](\"/asc-img/GUID-E947093F-2943-40D4-A99C-7BD92CDD069E-low.gif\")
\"As of December 31, 20X4\" Environmental Credit Obligation Liability Funded Obligation Unfunded Obligation Total Obligation Current liability \" $5,100 \" \" $1,400 \" \" $6,500 \" Noncurrent liability \" 3,800 \" - \" 3,800 \" Total \" $8,900 \" \" $1,400 \" \" $10,300 \" Environmental Credit Obligation Cost and Expense Information \"For the Year Ended December 31, 20X4\" Expense recognized for environmental credit obligations(a) \" $9,370 \" Costs capitalized as part of inventory that are associated with environmental credit obligations \" $2,000 \" (a) Expense recognized for environmental credit obligations is included in other expenses in the income statement.