Accounting For Asset Retirement Obligation

1077 Words Nov 25th, 2009 5 Pages
In the past it was noted that companies reported the asset retirement obligation through taking into account a variety of liabilities. The asset retirement obligation was set up so as to come up a harmonious procedure would be implemented so as to overcome the problem of retiring the long-term asset. Companies should recognize liabilities for the asset retirement obligation during the time when an obligation is incurred and when there is reasonable estimate that a fair value will be made for an asset as per the Statement of Financial Accounting Standards (SFAS) N.O 143.

There are different kinds of approaches that are followed when recognizing the asset retirement obligation, these include: recognition of the asset retirement obligation
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The amounts of assets and liabilities under the SFAB 143 are recorded each year as accretion and depreciation expenses the capitalized asset retirement would be allocated in a rational and systematic manner while the depreciation expense would be recorded over the estimated useful life of the asset (Guinn, Schroeder, and Sevi, 2005)Depreciation would be calculated through increasing the asset base by dividing using the assets useful life which is adopted by Statements of the Financial Accounting Standards (SFAS) 143 .The accretion expense is calculated through multiplying the balance of recorded liability while using the company's credit-adjusted discount rate that occurs each year that is also referred to as amortization of the present value discount that is associated with the asset retirement obligation.

b). The period and amount that Black Gold (BG )would account for the decrease that is related to $50,000 downward adjustment recorded to asset retirement obligation in its income statementAccording to SFAS 143 the present value of asset
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