When certain kinds of assets are built that require public welfare and safety expenditures at the end of the asset's life:
A) these asset retirement costs are expensed when asset retirement occurs.
B) a liability simultaneously arises.
C) these estimated future expenditures are added to the carrying value of the asset.
D) this fact is only reported in the financial statement footnotes.

Question

When certain kinds of assets are built that require public welfare and safety expenditures at the end of the asset's life: 
A) these asset retirement costs are expensed when asset retirement occurs.
B) a liability simultaneously arises.
C) these estimated future expenditures are added to the carrying value of the asset.
D) this fact is only reported in the financial statement footnotes.

Quizplus · Accepted Answer

When certain kinds of assets (such as nuclear power plants or oil rigs) are built that require public welfare and safety expenditures at the end of the asset's life, a liability arises simultaneously with the construction of the asset. The amount of the liability is the present value of the estimated future expenditures that will be required to retire (decommission or dismantle) the asset at the end of its useful life. This liability needs to be recognized and reported on the company's financial statements.

When Certain Kinds of Assets Are Built That Require Public