Remediation Cost

 Remediation is a term which means to provide remedy. Remediation cost deals with the removal of pollution or contaminants from environmental media such as soil, groundwater, sediment, or surface water for the general protection of human health and the environment. Remediation cost refers to taking up a corrective action to clean up an environmentally contaminated site to eliminate contamination or reduce the amount to an acceptable level. Remediation costs are of two types. On-site remediation costs include costs of reducing the discharge of pollutants in the environment that is generated during production process. Off-site remediation costs include costs of reducing or eliminating pollutants from the environment after they have been discharged.

The accounting of remediation cost is done by the Internal Revenue Service, which governs tax laws concerning the method of accounting for all business transactions, including land improvements or repairs. The accounting method of environmental remediation costs is entirely dependent on when the contamination occurred in relation to ownership of the property. In case the contamination occurred prior to current ownership, then the cost of remediation must be capitalized and if the contamination is occurred during the current ownership, then the entire cost can be expensed as incurred.

When the cost has to be capitalized for the remediation cost then there are a number of steps to be followed. Firstly, an Environmental Remediation account is created in the assets section of the general ledger. Next the increase in the remediation account or the entire amount of the cost of the remediation is recorded. A decrease is recoded in the Checking/Cash account.

When the cost has to be expensed first an environment remediation expense account is created in the extraordinary expense section. Next the increase and the decrease in the costs are recorded in the similar manner as capitalized cost.

Questions

• What is a remediation cost?
• How is it recorded?