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 3
| 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?? |
| Caliph | dont find this in 2022/2023 either |