Company X has a 31st December financial year end .On 1st January 2011 it was granted 100000 units of carton emission rights, valid for one year by the government. At that date emission rights had a market value of $10 per unit.
Company X emits significant amounts of carbon as a result of its production and consequently regards the rights as an item of inventory.
As at 30th June 2011 it has emitted 4700 units of carbon. Emission rights are trading at $9 per unit. As at 31st December 2011 Company X has emitted a further 5100 units of carbon. The company sells its unutilized rights for $6 per unit on 31st December. Company X uses the cost model of financial reporting.
Required:
a) Construct the journal entries Company X will pass on 1st January, 30th June and 31st December with respect to its acquisition, utilization and trade of carbon emission units.