allowances received for no consideration under the national emission allowance assig 612380

Repsol YPF, S.A. (2010)

Notes to the 2010 consolidated financial statements [extract]

3.3 Accounting Policies [extract]

3.3.6. Other intangible assets [extract]

b) Emission allowances

Emission allowances are recognized as an intangible asset and are measured at acquisition cost.

Allowances received for no consideration under the National Emission Allowance Assignment Plan, are initially recognized at the market price prevailing at the beginning of the year in which they are issued, and a balancing item is recognized as a grant for the same amount under deferred income, which are charged against income as the corresponding tons of CO₂ are consumed.

These allowances are not amortized as their carrying amount equals their residual value and, therefore, the depreciable basis is zero, as their value is constant until delivery to the authorities; the allowances may be sold at any time. Emission allowances are subject to an annual impairment test (section 3.3.10. below). The fair value of the emissions allowances is measured based on the average market price on European Union Allowances Exchange for the last trading session of the year provided by the ECX-European Climate Exchange.

The Group records an expense under “Other operating expenses” in the income statement for the CO₂ emissions released during the year, recognizing a provision calculated based on the tons of CO₂ emitted, measured at: (i) their carrying amount in the case of the allowances of which the Group is in possession at year-end; and (ii) the closing list price in the case of allowances of which it is not in possession at year-end.

When the emissions allowances for CO₂ tons emitted are delivered to the authorities, the intangible assets as well as their corresponding provision are derecognized from the balance sheet without any effect on the income statement.