Settling the Asset Retirement Obligation
Asset retirement obligations can be settled partially or in full. When an asset is retired and the asset retirement obligation is settled, the difference between the asset retirement obligation liability and the amount actually incurred is to be recognized as either a gain or loss. If the actual cost is greater than the ARO liability, a loss is recognized, and if the actual cost is less than the asset retirement obligation liability, a gain is recognized.
Use the Retire/Reinstate Asset component or the Disposal Worksheet component to record the settlement of asset retirement obligations.
See Understanding Asset Retirement Using the Disposal Worksheet
Accounting Entities for Settlement of Asset Retirement Obligation
The following tables present the scenarios for accounting entries of ARO Settlement:
| Settlement of ARO Without Recognized Gain or Loss: | Debit | Credit |
|---|---|---|
|
ARO Liability |
XXXX |
|
|
ARO Settlement |
XXXX |
| Settlement of ARO with Recognized Gain | Debit | Credit |
|---|---|---|
|
ARO Liability |
XXXX |
|
|
ARO Settlement |
XXXX |
|
|
Gain on Settlement of ARO |
XXXX |
| Settlement of ARO with Recognized Loss | Debit | Credit |
|---|---|---|
|
ARO Liability |
XXXX |
|
|
ARO Settlement |
XXXX |
|
|
Loss on Settlement of ARO |
XXXX |
| Removal of Capitalized ARC | Debit | Credit |
|---|---|---|
|
Accumulated Depreciation |
XXXX |
|
|
Long-lived Asset (ARC) |
XXXX |