# ASC 410-20-30: Asset Retirement and Environmental Obligations — Asset Retirement Obligations — 30 Initial Measurement

Source: FASB Accounting Standards Codification, Basic View

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## ASC 410-20-30: 30 Initial Measurement

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#### Determination of a Reasonable Estimate of Fair Value

##### [410-20-30-1](https://asc.understandingaccounting.org/asc/410/20/#410-20-30-1)

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An expected present value technique will usually be the only appropriate technique with which to estimate the fair value of a liability for an [asset retirement obligation](https://asc.understandingaccounting.org/glossary/a/#asset-retirement-obligation "An obligation associated with the retirement of a tangible long-lived asset."). An entity, when using that technique, shall discount the expected cash flows using a credit-adjusted risk-free rate. Thus, the effect of an entity's credit standing is reflected in the discount rate rather than in the expected cash flows. Proper application of a [discount rate adjustment technique](https://asc.understandingaccounting.org/glossary/d/#discount-rate-adjustment-technique "A present value technique that uses a risk-adjusted discount rate and contractual, promised, or most likely cash flows.") entails analysis of at least two liabilities—the liability that exists in the marketplace and has an observable interest rate and the liability being measured. The appropriate rate of interest for the cash flows being measured shall be inferred from the observable rate of interest of some other liability, and to draw that inference the characteristics of the cash flows shall be similar to those of the liability being measured. Rarely, if ever, would there be an observable rate of interest for a liability that has cash flows similar to an asset retirement obligation being measured. In addition, an asset retirement obligation usually will have uncertainties in both timing and amount. In that circumstance, employing a discount rate adjustment technique, where uncertainty is incorporated into the rate, will be difficult, if not impossible. See paragraphs

[410-20-55-13 through 55-17](https://asc.understandingaccounting.org/asc/410/20/#410-20-55-13)

and Example 2 (paragraph [410-20-55-35](https://asc.understandingaccounting.org/asc/410/20/#410-20-55-35)). For further information on present value techniques, see the guidance beginning in paragraph [820-10-55-4](https://asc.understandingaccounting.org/asc/820/10/#820-10-55-4).