Essay about LOI 10-4

665 Words Feb 6th, 2014 3 Pages
Case 10-4
Lack of Information
As indicated in the following memo, Lack of Information (LOI) has identified obligations to handle and dispose of asbestos upon retirement of several of its warehouses. Also as reflected in the memo, LOI has decided that it is not required to recognize any liabilities related to these obligations because it has asserted that the obligations are not probable or that it does not have sufficient information available.

Required:


For each identified obligation, determine whether you agree with LOI’s conclusion and discuss the basis for your determination.

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Case 10-4: Lack of Information

MEMO
To:
From:
Subject:
Date:

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2 of the 25 warehouses containing the asbestos reside in states that do not have laws in place requiring the special handling and disposal of the asbestos when the building is demolished or otherwise significantly renovated. However, LOI does have a legally binding contract to sell the warehouses in six months to a third party. The purchase/sales contract contains a standard provision allowing the buyer to require LOI to remove the asbestos prior to the date of the sale. LOI has previously sold warehouses to this same third party based on purchase/sales contracts containing similar provisions related to the removal of asbestos. In each of those transactions, the third party has never enforced the provision requiring
LOI to remove the asbestos from the warehouses. Based on this prior experience with the third party, LOI believes that there is a 90% probability that the third party will not enforce the provision in the current purchase/sales contract requiring LOI to remove the asbestos. Because it is not probable that LOI will be required to remove the asbestos, no asset retirement obligation needs to be recognized. At worst, there is not sufficient information (based on ASC 410-2025-10) to determine the fair value of the asset retirement obligation as it is currently uncertain as to whether LOI will be required to remove…

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