The 2-Fund Portfolio Asset Retirement Obligations. How does it affect residual value or useful life? Shop the Black Friday Sale: Get 50% off Quizlet … When asset retirement obligations are recorded in PeopleSoft, an asset cost adjustment recognizes the increase in the carrying value of the related long-lived asset. A quick note about future expected returns: I demonstrate two different returns. A business should recognize the fair value of an ARO when it incurs the liability and if it can make a reasonable estimate of the fair value of the ARO. Asset Retirement Obligation Definition: An accounting rule established by Financial Accounting Standards Board Rule No. Which principle does this method apply the best? Assuming it has already been established a plant asset is impaired, which of the following statements best describes how the loss is measured? IAS 16 outlines the accounting treatment for most types of property, plant and equipment. AccountingTools. 1) recoverability test: determine whether or not an impairment exists. The retirement quantity is 50 percent of the asset quantity, and the system uses this percentage to calculate the asset's retirement amount. The costs are incurred at the end of the asset's life but are capitalized when they become estimable, often at the beginning of the asset's useful life. DDB assumes asset is used more in its earlier life than in its later life; AKA - accelerated method. The exact impairment analysis will depend on what? The obligation must stem from a legal obligation--one that the firm is required to settle as a result of a law or contract. A plant asset is considered to be impaired when: f. An estimate of its total undiscounted future cash flows are less than the asset's book value. ASC 410-30 addresses the accounting and reporting for environmental obligations. These calculations appear in the following table: Quantity. How is the annual accretion expense and corresponding increase to asset retirement obligation (ARO) found? How much is capitalized to the asset retirement obligation? The depreciation charge is calculated as the increased asset base divided by the asset’s useful life on the date of adopting SFAS 143. What are the two parts of an impairment test? Asset retirement obligation/decommissioning cost broadly refers to the amount that a company expects to incur in disposing of the asset and reversing modifications made to the installation site. Assume a company uses the sum-of-the-years'-digits depreciation method for an asset with a useful life of 4 years. Asset retirement cost is the offsetting asset that is created when an asset retirement obligation (ARO) is recognized. The asset retirement cost increases the carrying amount of the fixed asset for which the ARO was created. c. depreciable cost; should equal accumulated depreciation, The book value should equal _______ at the end of it's useful life. it assumes that the asset is used up evenly over its useful life. Amid this daily grind, its easy to put retirement savings on the back burner, especially when its 15, 20 or 30 years off. Any asset retirement costs capitalized pursuant to Statement 143 are subject to the full cost ceiling limitation under Rule 4-10(c)(4) of Regulation S-X. Learn vocabulary, terms, and more with flashcards, games, and other study tools. the asset's cost less its estimated residual value. The rationale for capitalizing such costs to the asset is that the retirement activities are integral to the operation of the asset. 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