Recently,companies have been ordered by governmental agencies to clean up environmental damages caused by business operations.How should costs incurred in these situations be treated?

Question

Quizplus · Accepted Answer

If a legal obligation exists, the cost of cleaning up environmental damages should be added to the asset account as a capitalized cost. The cost should then be depreciated or amortized over the useful life of the asset. This is in accordance with the matching principle, which requires that the costs of generating revenue be recorded in the same period as the revenue they help to generate.

Recently,companies Have Been Ordered by Governmental Agencies to Clean Up