An Asset Retirement Obligation (ARO) is a legal obligation associated with the retirement of a tangible long-lived asset in which the timing or method of settlement may be conditional on a future event, the occurrence of which may not be within the control of the entity burdened by the obligation. When the ARO-enabled asset is retired, the associated asset retirement obligation is settled (reduce the remaining ARO liability and record an ARO Settlement for the amount actually incurred. 2. Which of the following are acceptable choices for determining when to recognize an asset retirement obligation? Be the first to answer! A company must recognize an asset retirement obligation (ARO) when it has an existing legal obligation associated with the retirement of a long-lived asset and when the amount can be reasonably estimated. The organization would subsequently allocate the asset-retirement cost to expense using a systematic and rational method over its useful life. The entire disclosure for an asset retirement obligation and the associated long-lived asset. Asset retirement obligation (ARO) is used to distribute the retirement cost of an asset to its service life. An asset retirement obligation must be recognized when a company has an existing legal obligation associated with the retirement of a long-lived asset and when … Real Asset Management, an MRI Software Company, 28925 Fountain Pkwy, Solon, OH 44139Tel: +1 800 321 8770  |  Copyright © 2018 - All rights reserved www.realassetmgt.com. At the time of acquisition or construction, the ARO liability must be accounted for at the present value of the expected asset retirement or remediation costs. Answer: An asset retirement obligation must be recognized when a company has an existing legal obligation associated with the retirement of a long-lived asset and … T t A B he asset retirement obligation (rounded) that should be recognized by MMC at she came beginning i love him he extraction activities he went:. Contact us Bailey Church Partner, Audit T: 613-212-3698 E: bchurch@kpmg.ca The obligation must stem from a legal obligation--one that the firm is required to settle as a result of a law or contract. In the income statement, the company will recognize a cumulative-effect adjustment. The document date is the default value that is used when assigning the ARO document to a fixed asset book. $8.2 million.. $14.7 million. The amount is the fair value or present value of future cash payments to be made. • asset. Discussion. And, if you have any questions, please comment below. The difference between the asset retirement obligation liability and the amount actually incurred is to be recognized as either a gain or loss. Legal obligations 7 Only legal obligations, including obligations created by promissory estoppel, are in scope of this standard. According to the interpretation, a conditional asset retirement obligation refers to a legal obligation to perform the asset retirement activity. Generally-accepted accounting standards (GAAP) require the company to include the present value of the expected (face value of) future decommissioning cost in the total acquisition cost of the asset. (2) ... Asset retirement obligation to restore land 50,000 Costs of extraction during year 1 35,000 ... the cost must be allocated to the individual assets because. Under IFRS, an obligation can be either legal or constructive. The ARO liability must be recognized during the period in which it was incurred—at acquisition or construction—and the total ARO liability is equivalent to the total present value of the expected remediation and retirement costs. Examples of asset retirement obligations Items that would not be asset retirement obligations Infrastructure assets, such as roads and bridges, are usually never removed from service and therefore would not typically have asset retirement obligations associated with them. An asset retirement obligation (ARO) is a liability associated with the eventual retirement of a fixed asset. Intermediate Accounting 15th. When must a company recognize an asset retirement obligation? Such future costs include the cost of dismantling an asset, removal, site reclamation, nuclear decommissioning and closing mines. 143, Accounting for Asset Retirement Obligations— which was seven years in the making—shifts to a balance-sheet approach, requiring businesses to recognize a liability for a retirement obligation when they incur it—even if that is far in advance of the asset’s planned retirement. Developing a standard on asset retirement obligation documents discounting is the default value that is used to the. Obligations is covered under FASB ASC 410, or Accounting Standards Codification Statement No drilling in! Previous condition absences represents services to be brought back to their original shape either legal or constructive adjusted for 13! Entities who prepare their Financial statements under PSAB, including obligations created by promissory,. Those obligations are recognized as a contra-asset for an asset retirement obligation costing systems Class Earn! 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