Question

When are companies required to remeasure AROs, and what types of changes result in the remeasurement?...

When are companies required to remeasure AROs, and what types of changes result in the remeasurement? How are changes recorded?

Homework Answers

Answer #1

Companies are not required to remeasure their AROs at fair value each year following the initial recognition of AROs.

Companies are required to recognize period-to-period changes in the liability for the asset retirement obligation resulting from-

(1) the passage of time (accretion) and

(2) revisions to either the timing or the amount of the original estimated future cash flows.

Changes in an ARO liability resulting from the passage of time should be recognized as an increase in the carrying value of the liability and as a charge to accretion expense. Changes due to revisions in timing or amount are recorded by adjusting the liability account and the amount charged to the underlying asset.

Thanks & all the best......

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