Asset retirement and environmental obligations

Question 1

When does an environmental liability need to be accrued?

Answer 1

When the liabilities are both probable and reasonably estimable

Question 2

How much is capitalized to the asset retirement obligation?

Answer 2

The present value of the estimated future payments (initial fair value)

Question 3

List the components of asset retirement obligation (ARO) costs

Answer 3

Costs to dismantle, reclaim, remove, etc

Question 4

How is the annual accretion expense and corresponding increase to asset retirement obligation (ARO) found?

Answer 4

Multiplying the interest rate used in capitalizing the initial amount, by the beginning balance in the ARO

Question 5

What amount does the asset retirement obligation increase to over time?

Answer 5

The final amount expected to be paid

Question 6

What is accretion expense associated with an ARO considered?

Answer 6

A growth in the ARO. Not Interest Expense