Recognition of Asset Retirement Obligations
To: Controller of LOI, Files
From: Accounting Class
Re: Recognition of Asset Retirement Obligations for Lack of Information
Date: June 2, 2014
Background
Lack of Information (LOI) owns and operates 50 warehouses throughout the country. As part of LOI’s efforts to identify potential asset retirement obligations, LOI’s internal audit group held interviews with all 50 of the warehouse managers and also performed site visits at each of the 50 locations. The related findings of the interviews and site visits noted the following facts:
Number of Warehouses
State Laws
Plans to Sell
25 w/ no asbestos
N/A
N/A
2 w/ asbestos
No state requirements re: removal of asbestos when significantly renovated or demolished
Under contract to sell
Buyer has option to require LOI to remove asbestos
LOI believes only 10% chance Buyer will require removal
10 w/ asbestos
State laws requiring removal of asbestos when significantly renovated or demolished
To be sold w/in 5 years
13 w/ asbestos
State laws requiring removal of asbestos when significantly renovated or demolished
Plan to operate indeterminately
Issue
Should LOI recognize an asset retirement obligation for each of the categories of warehouses with asbestos?
Analysis
FASB Accounting Standards Codification (ASC) Subtopic 410-20 Asset Retirement Obligations presents the relevant guidance on asset retirement obligations. Per ASC 410-20-15-2, asset retirement obligations include:
“a. Legal obligations associated with the retirement of a tangible long-lived asset that result from the acquisition… and (or) the normal operation of a long-lived asset...
c. A conditional obligation to perform a retirement activity. Uncertainty about the timing of settlement of the asset retirement obligation does not remove that obligation from the scope of this Subtopic but will affect the measurement of a liability for that obligation.”
Additionally, ASC 410-20-15-3 excludes the following from this scope of this Subtopic:
From: Accounting Class
Re: Recognition of Asset Retirement Obligations for Lack of Information
Date: June 2, 2014
Background
Lack of Information (LOI) owns and operates 50 warehouses throughout the country. As part of LOI’s efforts to identify potential asset retirement obligations, LOI’s internal audit group held interviews with all 50 of the warehouse managers and also performed site visits at each of the 50 locations. The related findings of the interviews and site visits noted the following facts:
Number of Warehouses
State Laws
Plans to Sell
25 w/ no asbestos
N/A
N/A
2 w/ asbestos
No state requirements re: removal of asbestos when significantly renovated or demolished
Under contract to sell
Buyer has option to require LOI to remove asbestos
LOI believes only 10% chance Buyer will require removal
10 w/ asbestos
State laws requiring removal of asbestos when significantly renovated or demolished
To be sold w/in 5 years
13 w/ asbestos
State laws requiring removal of asbestos when significantly renovated or demolished
Plan to operate indeterminately
Issue
Should LOI recognize an asset retirement obligation for each of the categories of warehouses with asbestos?
Analysis
FASB Accounting Standards Codification (ASC) Subtopic 410-20 Asset Retirement Obligations presents the relevant guidance on asset retirement obligations. Per ASC 410-20-15-2, asset retirement obligations include:
“a. Legal obligations associated with the retirement of a tangible long-lived asset that result from the acquisition… and (or) the normal operation of a long-lived asset...
c. A conditional obligation to perform a retirement activity. Uncertainty about the timing of settlement of the asset retirement obligation does not remove that obligation from the scope of this Subtopic but will affect the measurement of a liability for that obligation.”
Additionally, ASC 410-20-15-3 excludes the following from this scope of this Subtopic: