a) For the first 3 years the carbon units will be a fixed price set by the Clean Energy Regulator. From 1 July 2015 there will be a flexible charge. This flexible cost will be based upon the limited supply of units issued in that year which will fall in line with the carbon pollution cap. To acquire carbon units you must have an account with the Australian National Registry of Emissions Units (ANREU), as this account will hold the carbon units. Once an account with ANREU is created carbon units can be obtained through: * Assistance programs which give free units to certain industry groups * Purchasing from the Clean energy Regulator * Created though the carbon farming initiative * Approved international schemes purchased from third parties or secondary markets.

At the end of each year, organisations liable under the new act will surrender one carbon unit for every tonne of carbon pollution they have produced in that year. If an organisation does not surrender any or does not hold enough units, it will have to pay a fee. This fee is set at 130% of the fixed price for the fixed price year and up to 200% in the flexible period after (CER 2012).

b)
i) When looking for guidance on how to account for something with no standard a few things come to mind. The first thing would be to see if a similar standard has been released somewhere else around the world and see how they account for it and adjust accordingly to suit specifically to the one released here. Discussing/brainstorming with peers as to the best method on how to account for it would be another method as well as to look in the accounting standards. However when looking at the standards you look for things that act similar to what to what you are looking for, does it behave like an asset, liability or does it function like GST, depending on these things you look in different sections of the accounting handbook.

ii) When accounting for the acquisition of carbon units there are a couple of methods that could be used there is the intangible asset AASB 138, inventory AASB 102, and liability method AASB 137 (CPA 2012). 1. Under the intangible assets the carbon credits are recorded at cost, issued units would be recorded at either a zero or nominal cost. Purchased units however would be recorded at its purchase cost (Ernst & Young 2012). 2. Inventory is similar to intangible assets where purchased units are recorded at cost and issued units have a zero cost basis. However under inventory units are treated as inventory in the balance sheet and inflows and outflows are recorded as operating activities in the cash flow statement . 3. under the liability method issued units are recorded at zero and purchased are recorded at cost however the liability recoded is only the amount the emissions exceed the units granted and held. Any units purchased after that decrease the liability and decrease cash. Excess units are recorded as an asset or a contra liability.

c) For this section two methods will be outlined, that will depend upon whether you treat carbon units as an asset or a liability (Tang, O., Fiedler, B., 2011).

i) Asset: As the asset is used up you write it off to expense.
Dr: Expense
Cr: Asset
However it is important to note that this amount depends on how much is actually in this account as issued units have a zero balance, and only purchased units have a value the amount. In the first 3 years there is a fixed amount, so only the issued units may be impaired but the price won't fluctuate meaning any purchased units will not be adjusted, when the flexible price period starts then an impairment gain or loss will need to be taken into account.

Liability: Under the liability method the carbon units are offset against the actual emissions when