ASC 410 Summary
ASC 410 is the accounting standard codification that represents asset retirement and environmental obligations. Under ASC 410, there are two main subtopics which are asset retirement obligations and environmental obligations. Asset retirement obligations are legal obligations that may exist in connection with an entity’s retirement of a tangible long-lived asset. These legal obligations may arise when the entity acquires, constructs, or develops a long-lived asset, or operates a long-lived asset under normal conditions. However, it does not occur solely from an entity’s plan to dispose of a long-lived asset. Environmental obligations are environmental remediation liabilities that relate to pollution arising from a prior act, generally as a result of the provisions of laws and regulations.
In ASC 410-20, the subtopic is asset retirement obligations. Recognition of a liability for an asset retirement obligation shall occur in the period in which the entity incurs the obligation provided the entity can make a reasonable estimate of the fair value of the obligation. Due to the unique nature of these liabilities, an expected present value technique will usually be the only appropriate technique by which to estimate the fair value of an asset retirement obligation. This method requires a credit-adjusted, risk-free rate to be used to present value the expected cash flows. Adjustments for default risk shall be reflected in the discount rate rather than in the expected cash flows. Other methods of determining fair value can be used if the required inputs are available in the marketplace.
The recognition and measurement guidance also applies to a conditional asset retirement obligation. The term "conditional" is used to indicate that the timing of settlement, method of settlement, or both timing and method of settlement, are conditional upon the future occurrence of an event. The entity may or may not control the occurrence of this future event. The...
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