Specific Transactions Events and Disclosures

Question 1

What is ARO? How is it measured and recognized?

Hint: Asset Retirement

Answer 1

ARO = Asset Retirement Obligation

Measured = Fair Value (amount would pay today to cover future costs)

Initial Recognition = DR Asset CR ARO account

Subsequent Recognition = DR accretion expense CR ARO (The asset is depleted or depreciated as normal at the same time i.e. DR. depretion exp CR. Asset)

Question 2

ARO Asset Retirement Obligation is a _______ account?

Answer 2

ARO is a Liability

Question 3

How is a change in ACCOUNTING PRINCIPLE applied?

Example: Inventory accounting change Fifo to Lifo

Answer 3

Accounting Principle Change is
RETROspectivly applied
Prior period adjusted
Beginning balance of RE

Question 4

How is a change in ENTITY applied?

Ex: 2 companies merg

Answer 4

Change in Entity
consolidate financial statements
RETROspectivly applied
FOOTNOTES needed

Question 5

How is a change in ACCOUNTING ESTIMATE applied?

Example: Change in depreciation method

Answer 5

Change in ACCOUNTING ESTIMATE
PROSPECTIVE application
going forward only
DO NOT confuse this with accounting principle change

Question 6

Change in depreciation method is what type of accounting change? How is the change applied?

Answer 6

Depreciation method change is an ACCOUNTING ESTIMATE change. It is applied GOING FORWARD.

Question 7

Change in Inventory Accounting method is what type of accounting change? How is the change applied?

Answer 7

Inventory method change is an ACCOUNTING PRINCIPLE change. It is applied RETROspectivly. Prior period adjustment, beginning Retained Earning balance adjusted.