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U.S. GAAP
Financial Accounting Review

Section 5320: Asset Retirement and Environmental Obligations

[U.S. GAAP Codification Topic]
410 Asset retirement and environmental obligations
410-10 Overall
410-20 Asset retirement obligations
410-30 Environmental obligations

[U.S. GAAP before the Codification]
SFAS 143, June 2001, Accounting for Asset Retirement Obligations
AICPA SOP 96-1, Environmental Remediation Liabilities

1. Asset retirement obligation
--> an obligation related with the retirement of a tangible long-lived asset

2. Asset retirement cost
--> an increase in the carrying amount of long-lived assets
--> due to the recognition of an asset retirement obligation as a liability

3. Initial recognition and measurement
(1) If a reasonable estimate of fair value can be made
--> a liability is recognized for an asset retirement obligation
--> when it incurred

(2) If a reasonable estimate is not available when it incurred
--> a liability is recognized
--> when a reasonable estimate can be made

(3) To estimate the fair value of a liability
--> "expected present value technique" is used

(4) "Credit-adjusted risk-free rate" is used
--> to discount the expected cash flows

4. Subsequent measurement
(1) Step 1: Measure the changes in the liability
--> due to the passage of time
--> apply "interest method"

(2) Step 2: Measure the changes in the liability
--> due to a revision of estimated cash flows