Skip to content

ACCA Applied Skills · Performance Management · Accounting for environmental and sustainability factors

Kestrel Ltd incurred the following environmental costs last year: monitoring of emissions $12,000; installing a water-recycling system $45,000; clean-up after a leak $30,000; fine for exceeding a discharge limit $8,000. Using the four-way classification (prevention, appraisal, internal failure, external failure), what were Kestrel's external failure costs, assuming the leak damaged land outside the site and the clean-up was on that land?

External failure costs were $38,000, being the $30,000 clean-up of off-site land plus the $8,000 fine. Monitoring is an appraisal cost and the water-recycling system is a prevention cost, so neither is included in external failure costs.

  1. A$8,000
  2. B$30,000
  3. C$38,000Correct
  4. D$75,000

Explanation

External failure costs arise after pollution is released into the environment: clean-up of off-site land $30,000 plus the fine $8,000 = $38,000. Monitoring ($12,000) is appraisal and the recycling system ($45,000) is prevention. $30,000 alone omits the fine.

Did you get it right without looking?

One question tells you little. A timed set on Accounting for environmental and sustainability factors shows your real accuracy, how long you take and where you lose marks.

Practise Accounting for environmental and sustainability factorsFree diagnostic mock

More Accounting for environmental and sustainability factors questions