An Asset Retirement Obligation (ARO) relates to a legal obligation arising from the acquisition, construction, development, or normal operation of an asset
Initial Recognition and Measurement
- The associated Asset Retirement Cost is added to the carrying amount of the asset when an ARO is recognized
- The fair value of the ARO liability is recognized when incurred. It equals the present value of the future cash flows expected to be paid to settle the obligation,
- After the initial recognition, ARC is depreciated over the asset’s useful life
- The liability for the ARO recognized must be adjusted periodically for (1) the passage of time (accretion) and (2) revisions of the original estimate
- At the end of the asset's useful life, the actual costs incurred to settle the liability may differ from the carrying amount of the liability on that date. The difference between the amount paid and the carrying amount of the liability for an ARO is recognized as a gain or loss on settlement of the ARO
