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FAQ 3.2.3 - Can an entity classify the cost of carbon offsets as cost of sales in its income statement by function when it plans to use, rather than sell, the carbon offsets?
Publication date: 10 Jul 2024
gx In depth INT2023-02
For carbon offsets purchased in advance that are classified as raw material inventories or included in cost of products (see FAQ 3.2.1), the costs of the carbon offsets will be included in costs of sales in an income statement presented by function.
Where the carbon credits are not classified as raw material inventories or included in cost of products, entities might need to apply judgement to determine the most appropriate classification of their cost in an income statement presented by function. The cost of carbon credits might be classified as cost of sales if the entity considers that the use of carbon offsets relates to its revenue generating activities and cost of sales is the most appropriate function.
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