What does asset retirement obligation mean on the CPA exam?
Asset retirement obligation. A legal obligation associated with the retirement of a tangible long-lived asset, recognized at fair value in the period incurred, with an equal asset retirement cost capitalized into the asset. Conditional obligations are included. The liability then grows by accretion, not interest.
Defined against ASC 410-20-20, 25-4, 25-5.
Which CPA exam sections use asset retirement obligation?
Asset retirement obligation appears in the FAR section of the CPA exam.
Other terms defined against ASC 410-20
- accretion expense: The increase in an asset retirement obligation from the passage of time, measured by the interest method at the credit-adjusted risk-free rate in effect when the liability was first measured.
Other names for asset retirement obligation
ARO
Related terms
- asset acquisition: Buying a group of assets that does not amount to a business.
- capitalize: To record a cost as an asset and spread it over the periods it benefits, rather than expensing it immediately.
- performance obligation: A promise in a contract to transfer a distinct good or service.
- lease liability: The lessee's obligation to make the remaining lease payments, measured at their present value.
- held for sale: A classification for a component the entity is actively marketing and expects to sell within a year.
- full accrual: Recognizing revenue when earned and expense when incurred, and reporting every asset and liability including long-term ones.