ARO

Question 1

J/E when actual demolition and removal costs occur in final year

Answer 1

ARO liability (estimated cost) xxx

Demolition expense (extra) xxx

                    Cash/AP                       xxx

Question 2

ARO J/E

Answer 2

Asset retirement cost xxx (Asset at PV)

Asset retirement obligation xxx (Lib. at PV)

Accretion expense xxx (Beg ARO x accretion rate)

    Asset retirement obligation xxx (increase lib.)

Depreciation expense xxx (Asset ret. Cost/useful life)

   Accumulated depreciation xxx (decrease asset) ARC

Asset retirement obligation xxx (eliminate/use accrued ARO)

Mine dismantling expense xxx (Extra expense)

                Cash/AP                      xx  (Pay for cleanup)

Question 3

Example formula when this info is given:

ARO of xxx, acquisition of unconditional ARO measured at discounted cash flows of xxx, payment of xxx for settlement of previously recorded ARO, and accretion expense of xxx. What is current ARO?

Answer 3

Beginning ARO

+ PV of new ARO

+ Accrection expense

-ARO settled during period

Ending ARO