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Methanex Corporation - Essay Example

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Summary
Methanex Corporation, a Vancouver based publicly quoted company in Canada and USA, has entered into a 5 year agreement with Encana for provision of terminal ling services at its Kitimat site Starting Jan 2006. Methanex (Which produces and markets Methanol worldwide) will also have the option of selling the kitiman site to Encana, and the Option of Encana of buying the site from methanex within the 5 year period.
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Methanex Corporation
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BONIFACE MUTINDA ORDER: 126597 METHANEX KITIMAN TO PROVIDE TERMINALLING SERVICES TO ENCANA Describe the event in one Paragraph Methanex Corporation, a Vancouver based publicly quoted company in Canada and USA, has entered into a 5 year agreement with Encana for provision of terminal ling services at its Kitimat site Starting Jan 2006. Methanex (Which produces and markets Methanol worldwide) will also have the option of selling the kitiman site to Encana, and the Option of Encana of buying the site from methanex within the 5 year period.
Bruce Artken, President and CEO of Methanex described the event as a win-win situation for both parties. This due to the fact that Methanex will save on shutdown costs for the Kitimat site while Encana will have the benefit of a terminal ling facility.
2. Analyse how the Co. should Account for the Event
Issue: How to account for the proposed provision of terminal ling services / sale of Kitimat site.
Recognise the event
Do not recognise
-There is a binding agreement between
the two parties
-The value of the contract or agreement
can be estimated i.e. can be measured
from the capacity of the terminalling
facility.
-The event will have a direct impact on key ratios. This is because it affects sales, and costs.
-The performance of the agreement has not been effected. This is until Jan 2006.
-Prudence concept of accounting discourages recognition of un accrued benefits.
Recommendation:
The company should only disclose the event as a note in the financial statements.
4. Alternative treatment
Referring to the Generally Accepted Accounting Principles together with the International Accounting standards on Contingent Liabilities and Assets, it would also be in order if the company decides to completely omit this event in its financial statements for the current year. This is because the said event will not affect the transactions of the year (If it ends in 31st December) but transaction of the coming year.
5. Conclusion on how the event should be accounted for.
The management of Methanex Corporation should disclose the above event as a contingent asset in the financial Statements. This is if the event will fundamentally change the operations of the company and the profits thereof i.e. if the event is material in nature.
BIBLIOGRAPHY
Methanex Kitiman Announces Plans to close Kitiman. 30 Aug.2005.Methanex Corporation.29May2006. Read More
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