Question

In: Accounting

Asset retirement costs are: (which is correct) added to the carrying value of the related asset...

Asset retirement costs are: (which is correct)

added to the carrying value of the related asset in pro rata periods over the asset’s useful life.

are never recognized until the asset is retired.

are added to the carrying value of the related asset in the period of acquisition.

are not recognized until the dismantling and restoration costs are known with certainty.

Solutions

Expert Solution

Asset Retirement costs are :-

Option C - are added to the carrying value of the related asset in the period of acquisition. An Asset Retirement Obligation (ARO) is a liability that is to be created during the retirement of a long term tangible asset. As such, the Asset retirement costs are added to the carrying value of the related asset in the period when it is required.

Option A is incorrect as Asset retirement costs are added to the carrying value of the related asset in pro rata periods over the asset’s useful life.

Option B is incorrect as Asset retirement costs are recognized by adding them to the carrying value of the related asset in the period of acquisition. Since this option mentions that they are never recognized until the asset is retired, this statement is incorrect.

Option D is incorrect as the level of certainty does not matter in recognizing the Asset Retirement costs.

Please let me know if you have any questions via comments and all the best :) !

ekkarill92 answered 2 years ago
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