Accounting for Water as Smooth Brew Companys Asset - Essay Example

The president of the client company has consequently instructed that a Water account be created to account for the extra charge on the property.

The client’s request for the creation of a water account in its books should be upheld. This is because accounting concepts for natural assets recognize treatment into such an account. The scope of extraction and application of the water in the brewery and its significance identify it with natural resources. The cost of a natural resource defines the cost that is required for gaining possession of the resource and extracting it and the $ 1 million was, according to the client’s president, used in acquiring access to the water (Weygandt Kimmel and Kieso 413). The amount should therefore be treated to account for the water and be included in the water account because it is significant (Weygandt Kimmel and Kieso 414).

The $ 1 million should therefore be accounted for under the water account because it was spent in gaining possession of the resource and its value is significant.