Additionally, the asset retirement liability will be increased over time to account for the time value of money through charges to operating expense until the liability is ultimately extinguished when the actual removal work is performed. Finally, the statement requires that the cumulative-effect related to the adoption of the pronouncement be flowed through the income statement. Examples of obligations covered by SFAS 143 include obligations arising from: decommissioning nuclear energy generation facilities; dismantling and removing off-shore oil and gas production facilities; specified closure, reclamation, and removal costs associated with mining and smelting activities; and closure and post-closure costs of landfills, hazardous waste disposal facilities, and fuel storage facilities
The retirement liability arises from the obligation to remove or mitigate the impact of the potentially adverse effects of the operation of certain long-lived assets or the very asset itself. For example, in the waste management industry the costs include: the final capping of the site, site inspections, groundwater monitoring, methane gas control, and maintenance costs. In the investor-owned utility industry, costs include the actual removal and disposal of the activated (hot) equipment and facilities of nuclear reactors. The removal process includes engineering schedules, actual dismantlement of facilities, and current and future security. The mining industry faces costs not only of reclamation of the actual mining site but also of removal of roads, preparation plants, and other facilities.
SFAS 143 requires immediate recognition of a liability for such costs, measured at fair value (the amount at which the liability could be settled currently). On the asset side, the estimated cost of retirement must be capitalized to the related asset account at the time the liability is recognized, and future depreciation amounts must be revised accordingly. Th...
Financial Accounting Standards Board. (1969, December 31). In LotsofEssays.com. Retrieved 19:33, August 29, 2015, from http://www.collegetermpapers.com/viewpaper/1303512073.html