Unique Budgeted Income Statement Asset Retirement Obligation Example

The liability is commonly a legal requirement to return a site to its previous condition.

Budgeted income statement asset retirement obligation example. For example certain obligations such as nuclear decommissioning costs generally are incurred as the asset is operated. Bloomberg Tax Portfolio 5143 Asset Retirement Obligations Accounting Policy and Practice Series discusses the calculation presentation and disclosure of asset retirement obligations and presents the differences between US. Legally enforceable refers to some legal requirement by a third party such as due to federal state or local laws or regulations.

An asset retirement obligation ARO is a liability associated with the eventual retirement of a fixed asset. GAAP and IFRS in accounting for these items. Some examples of when a legal obligation may exist.

For example certain obligations such as nuclear decommissioning costs generally are inc urred as the asset is operated. Once an asset retirement obligation liability is estimated a liability and asset of equal value are. An asset retirement obligation is the liability for the removal of property equipment or leasehold improvements at the end of the lease term.

143 Accounting for Asset Retirement Obligations which was seven years in the makingshifts to a balance-sheet approach requiring businesses to recognize a liability for a retirement obligation when they incur iteven if that is far in advance of the assets planned retirement. 3419 Asset Retirement Obligations AROs. This is a non-cash expense item and does not directly drive budgeted revenues.

SFAS 143 Accounting for Asset Retirement Obligations which was effective for fiscal periods beginning on or after January 1 2003. The Portfolio provides in-depth practical examples. The accounting for these obligations is covered under FASB ASC 410 or Accounting Standards Codification Statement No.

Consider an oil-drilling company that acquires a 40-year lease on a parcel of land. An asset retirement obligation ARO initially should be measured at fair value and should be r ecognized at the time the obligation is incurred provided that a reasonable estimate of fair value can be made. The capitalized cost includes the acquisition cost and all costs to bring the asset to a form and location suitable for its intended use for example.