ARO Flashcards
1
Q
At the beginning of the year, the carrying value of an asset was $1,000,000 with 20 years of remaining life. The fair value of the liability for the asset retirement obligation was $100,000. At year-end, the carrying value of the asset was $950,000. The risk-free interest rate was 5%. The credit-adjusted risk-free interest rate was 10%. What was the amount of accretion expense for the year related to the asset retirement obligation?
A
Changes in the value of a liability for an asset retirement obligation must be measured by applying an interest method of allocation using a credit-adjusted, risk-free interest rate. Accretion expense would be:
•$100,000 × 0.10 = $10,000
2
Q
What is JE for ARO
A
DR Asset CR ARO Liability
