CFA Practice Question

CFA Practice Question

Which of the following is most likely incorrect?
A. If a firm with a future obligation for an asset retirement did not record an Asset Retirement Obligation (ARO), then its balance sheet equity would experience a sudden increase when the obligations required to retire the asset were met.
B. An asset equal to the initial Asset Retirement Obligation (ARO) liability is added to the balance sheet, and depreciated over the life of the asset.
C. Firms must recognize the Asset Retirement Obligation (ARO) liability in the period the asset was acquired.
Explanation: If a firm with a future obligation for an asset retirement did not record an ARO, then its balance sheet equity would experience a sudden decrease when the obligations required to retire the asset were met.

User Contributed Comments 2

User Comment
ryanp1 you only recognize the ARO in the period the asset was acquired if the value can be reasonably estimated
eabhal Is this on the 2020/2021 curriculum??
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