At the time of recognition of an asset retirement obligation, the present value should be
A) recorded as a separate long-term asset and as an asset retirement obligation.
B) expensed and recorded as an asset retirement obligation.
C) expensed to "Asset Retirement Expense" in the period actually paid.
D) added to the related asset cost and recorded as an asset retirement obligation.

Question

Quizplus · Accepted Answer

According to accounting standards, when recognizing an asset retirement obligation (ARO), the present value of the estimated retirement costs is added to the carrying amount of the related long-term asset. This amount is then depreciated over the asset's useful life. Additionally, a liability for the same amount is recognized, reflecting the present value of the obligation to retire the asset in the future.

At the Time of Recognition of an Asset Retirement Obligation