Some assets, such as a nuclear power plant, are not readily salable at the end of their useful lives, and retiring them may impose substantial costs.Which of the following is/are true?
A)Firms must estimate the fair value of the dismantling costs and include that amount in the initial measurement of the asset.
B)Firms recognize a liability, referred to as an asset retirement obligation at the estimated fair value of the dismantling costs.
C)Firms compute depreciation based on the combined cost of the plant assets, including the fair value of the dismantling obligations.
D)all of the above
E)none of the above

Question

Quizplus · Accepted Answer

All of the choices are correct. Firms must estimate and include the fair value of dismantling costs in the initial measurement of the asset (A), recognize a liability for the asset retirement obligation at the estimated fair value of the dismantling costs (B), and compute depreciation based on the combined cost of the plant assets, including the fair value of the dismantling obligations (C).

Some Assets, Such as a Nuclear Power Plant, Are Not