# ASC 410-20-55: Asset Retirement and Environmental Obligations — Asset Retirement Obligations — 55 Implementation Guidance and Illustrations Source: FASB Accounting Standards Codification, Basic View [Read online](https://asc.understandingaccounting.org/asc/410/20/#55-implementation-guidance-and-illustrations) Study and research edition. Verify current requirements with the official source. Summaries, enrichment, and tags are machine-generated study aids. Paragraph html preserves source markup; snippet is abbreviated. Pending content is not necessarily effective. Tables and mathematical or amendment markup are retained as HTML where Markdown would lose structure. Source downloaded (UTC): 2026-09-10T00:21:10.890Z to 2026-09-10T00:21:10.890Z Record version: sha256:f3ef0ea8516ba96d1a8f537099df6b3fc0432afaefc6acd6f8f9a2fcbc7e9842 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 410-20-55: 55 Implementation Guidance and Illustrations [Read section](https://asc.understandingaccounting.org/asc/410/20/#55-implementation-guidance-and-illustrations) SEC content: no #### Implementation Guidance ##### [410-20-55-1](https://asc.understandingaccounting.org/asc/410/20/#410-20-55-1) Pending content: no Source downloaded (UTC): 2026-09-10T00:21:10.890Z to 2026-09-10T00:21:10.890Z Record version: sha256:8edf6493b5df06b2c216e404079ee81291d1e20719719787eb66cc9b62471f2a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This implementation guidance illustrates Section 410-20-15. In most cases involving 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."), the determination of whether a [legal obligation](https://asc.understandingaccounting.org/glossary/l/#legal-obligation "An obligation that a party is required to settle as a result of an existing or enacted law, statute, ordinance, or written or oral contract or by legal construction of a contract under the doctrine of promissory estoppel.") exists should be unambiguous. However, in situations in which no law, statute, ordinance, or contract exists but an entity makes a promise to a third party (which may include the public at large) about its intention to perform [retirement](https://asc.understandingaccounting.org/glossary/r/#retirement "The other-than-temporary removal of a long-lived asset from service. That term encompasses sale, abandonment, recycling, or disposal in some other manner. However, it does not encompass the temporary idling of a long-lived asset. After an entity retires an asset, that asset is no longer under the control of that entity, no longer in existence, or no longer capable of being used in the manner for which the asset was originally acquired, constructed, or developed.") activities, facts and circumstances need to be considered carefully in determining whether that promise has imposed a legal obligation upon the promisor under the doctrine of [promissory estoppel](https://asc.understandingaccounting.org/glossary/p/#promissory-estoppel "\"The principle that a promise made without consideration may nonetheless be enforced to prevent injustice if the promisor should have reasonably expected the promisee to rely on the promise and if the promisee did actually rely on the promise to his or her detriment.\" (See Black's Law Dictionary, seventh edition.)"). A legal obligation may exist even though no party has taken any formal action. In assessing whether a legal obligation exists, an entity is not permitted to forecast changes in the law or changes in the interpretation of existing laws and regulations. Preparers and their legal advisors are required to evaluate current circumstances to determine whether a legal obligation exists. ##### [410-20-55-2](https://asc.understandingaccounting.org/asc/410/20/#410-20-55-2) Pending content: no Source downloaded (UTC): 2026-09-10T00:21:10.890Z to 2026-09-10T00:21:10.890Z Record version: sha256:021bc5ded64fe8a8b06068f65c185bbde6781622ac2599b82c3d64c7a3931be2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For example, assume an entity operates a manufacturing facility and has plans to retire it within five years. Members of the local press have begun to publicize the fact that when the entity ceases operations at the plant, it plans to abandon the site without demolishing the building and restoring the underlying land. Due to the significant negative publicity and demands by the public that the entity commit to dismantling the plant upon retirement, the entity's chief executive officer holds a press conference at city hall to announce that the entity will demolish the building and restore the underlying land when the entity ceases operations at the plant. Although no law, statute, ordinance, or written contract exists requiring the entity to perform any demolition or restoration activities, the promise made by the entity's chief executive officer may have created a legal obligation under the doctrine of promissory estoppel. In that circumstance, the entity's management (and legal counsel, if necessary) would have to evaluate the particular facts and circumstances to determine whether a legal obligation exists. ##### [410-20-55-3](https://asc.understandingaccounting.org/asc/410/20/#410-20-55-3) Pending content: no Source downloaded (UTC): 2026-09-10T00:21:10.890Z to 2026-09-10T00:21:10.890Z Record version: sha256:bf08c4f4b3dc25278b508cec86b58e1d5c55d35df79dfedc39e4013b1204980d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Once an entity determines that a duty or responsibility exists, it will then need to assess whether an obligating event has occurred that leaves it little or no discretion to avoid the future transfer or use of assets. If such an obligating event has occurred, an asset retirement obligation meets the definition of a liability and qualifies for recognition in the financial statements. However, if an obligating event that leaves an entity little or no discretion to avoid the future transfer or use of assets has not occurred, an asset retirement obligation does not meet the definition of a liability and, therefore, should not be recognized in the financial statements. ##### [410-20-55-4](https://asc.understandingaccounting.org/asc/410/20/#410-20-55-4) Pending content: no Source downloaded (UTC): 2026-09-10T00:21:10.890Z to 2026-09-10T00:21:10.890Z Record version: sha256:6fa0b907e281a2a6b62608fbacc6e4c7a71ae66159deb3cdaa6638c9b2e6d5db Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Identifying the obligating event is often difficult, especially in situations that involve the occurrence of a series of transactions or other events or circumstances affecting the entity. For example, in the case of an asset retirement obligation, a law or an entity's promise may create a duty or responsibility, but that law or promise in and of itself may not be the obligating event that results in an entity's having little or no discretion to avoid a future transfer or use of assets. An entity must look to the nature of the duty or responsibility to assess whether the obligating event has occurred. For example, in the case of a nuclear power facility, an entity assumes responsibility for decontamination of that facility upon receipt of the license to operate it. However, no obligation to decontaminate exists until the facility is operated and contamination occurs. Therefore, the contamination, not the receipt of the license, constitutes the obligating event. ##### [410-20-55-5](https://asc.understandingaccounting.org/asc/410/20/#410-20-55-5) Pending content: no Source downloaded (UTC): 2026-09-10T00:21:10.890Z to 2026-09-10T00:21:10.890Z Record version: sha256:d5ba3a735746f9fe6c09c2f8a3ae99f6ea51e803634aa41abefa8196220f9f3a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This implementation guidance illustrates Section 410-20-15. Contracts between entities may contain an option or a provision that requires one party to the contract to perform retirement activities when an asset is retired. The other party may decide in the future not to exercise the option or to waive the provision to perform retirement activities, or that party may have a history of waiving similar provisions in other contracts. Even if there is an expectation of a waiver or nonenforcement, the contract still imposes a legal obligation. That obligation is included in the scope of this Subtopic. The likelihood of a waiver or nonenforcement will affect the measurement of the liability. For example, consider an entity that owns and operates a landfill. Regulations require that that entity perform capping, [closure](https://asc.understandingaccounting.org/glossary/c/#closure "Related to the Resource Conservation and Recovery Act of 1976: the process in which the owner-operator of a hazardous waste management unit discontinues active operation of the unit by treating, removing from the site, or disposing of on site all hazardous wastes in accordance with an Environmental Protection Agency or state-approved plan. Included, for example, are the process of emptying, cleaning, and removing or filling underground storage tanks and the capping of a landfill. Closure entails specific financial guarantees and technical tasks that are included in a closure plan and must be implemented."), and postclosure activities. Capping activities involve covering the land with topsoil and planting vegetation. Closure activities include drainage, engineering, and demolition and must be performed prior to commencing the postclosure activities. Postclosure activities, the final retirement activities, include maintaining the landfill once final certification of closure has been received and monitoring the ground and surface water, gas emissions, and air quality. Closure and postclosure activities are performed after the entire landfill ceases receiving waste (that is, after the landfill is retired). However, capping activities are performed as sections of the landfill become full and are effectively retired. The fact that some of the capping activities are performed while the landfill continues to accept waste does not remove the obligation to perform those intermediate capping activities from the scope of this Subtopic. ##### [410-20-55-6](https://asc.understandingaccounting.org/asc/410/20/#410-20-55-6) Pending content: no Source downloaded (UTC): 2026-09-10T00:21:10.890Z to 2026-09-10T00:21:10.890Z Record version: sha256:206bb1d3c38dc59f70f2f9947e8bdefe194ffe2351a6ba283930f3e7a45495c0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This implementation guidance illustrates Section 410-20-15. Whether an obligation results from the acquisition, construction, or development of a long-lived asset should, in most circumstances, be clear. For example, if an entity acquires a landfill that is already in operation, an obligation to perform capping, closure, and postclosure activities results from the acquisition and assumption of obligations related to past normal operations of the landfill. Additional obligations will be incurred as a result of future operations of the landfill. ##### [410-20-55-7](https://asc.understandingaccounting.org/asc/410/20/#410-20-55-7) Pending content: no Source downloaded (UTC): 2026-09-10T00:21:10.890Z to 2026-09-10T00:21:10.890Z Record version: sha256:80756c48b6d672d416bdee1df77306a872f995b714d0b30f21f717df71e4b3e0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This implementation guidance illustrates Section 410-20-15. Whether an obligation results from the normal operation of a long-lived asset may require judgment. Obligations that result from the normal operation of an asset should be predictable and likely of occurring. For example, consider an entity that owns and operates a nuclear power plant. That entity has a legal obligation to perform decontamination activities when the plant ceases operations. Contamination, which gives rise to the obligation, is predictable and likely of occurring and is unavoidable as a result of operating the plant. Therefore, the obligation to perform decontamination activities at that plant results from the normal operation of the plant. ##### [410-20-55-8](https://asc.understandingaccounting.org/asc/410/20/#410-20-55-8) Pending content: no Source downloaded (UTC): 2026-09-10T00:21:10.890Z to 2026-09-10T00:21:10.890Z Record version: sha256:a2a8e4b657b2fec2b69494f5db31a287e286c6b1477c028ce78b89c272d27cb9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For example, a certain amount of spillage may be inherent in the normal operations of a fuel storage facility, but a catastrophic accident caused by noncompliance with an entity's safety procedures is not. The obligation to clean up after the catastrophic accident does not result from the normal operation of the facility and is not within the scope of this Subtopic. ##### [410-20-55-9](https://asc.understandingaccounting.org/asc/410/20/#410-20-55-9) Pending content: no Source downloaded (UTC): 2026-09-10T00:21:10.890Z to 2026-09-10T00:21:10.890Z Record version: sha256:bd8c8d4f189e22e1aa040a65ade98810edc94db57108635ae599030827afd9e3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An asset retirement obligation may exist for component parts of a larger system. In some circumstances, the retirement of the component parts may be required before the retirement of the larger system to which the component parts belong. ##### [410-20-55-10](https://asc.understandingaccounting.org/asc/410/20/#410-20-55-10) Pending content: no Source downloaded (UTC): 2026-09-10T00:21:10.890Z to 2026-09-10T00:21:10.890Z Record version: sha256:f3486d15f811edb53b0ab9394163ba0b9fa8a4fe023ae17b0b604aa738f00af8 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For example, consider an aluminum smelter that owns and operates several kilns lined with a special type of brick. The kilns have a long useful life, but the bricks wear out after approximately five years of use and are replaced on a periodic basis to maintain optimal efficiency of the kilns. Because the bricks become contaminated with hazardous chemicals while in the kiln, a state law requires that when the bricks are removed, they must be disposed of at a special [hazardous waste](https://asc.understandingaccounting.org/glossary/h/#hazardous-waste "Related to Resource Conservation and Recovery Act of 1976: a waste, or combination of wastes, that because of its quantity, concentration, toxicity, corrosiveness, mutagenicity or inflammability, or physical, chemical, or infectious characteristics may cause, or significantly contribute to, an increase in mortality or an increase in serious irreversible, or incapacitating reversible illness or pose a substantial present or potential hazard to human health or the environment when improperly treated, stored, transported, or disposed of, or otherwise managed. Technically, those wastes that are regulated under the Resource Conservation and Recovery Act of 1976 40 CFR Part 261 are considered to be hazardous wastes.") site. The obligation to dispose of those bricks is within the scope of this Subtopic. The cost of the replacement bricks and their installation are not part of that obligation. This implementation guidance illustrates Section 410-20-15. ##### [410-20-55-11](https://asc.understandingaccounting.org/asc/410/20/#410-20-55-11) Pending content: no Source downloaded (UTC): 2026-09-10T00:21:10.890Z to 2026-09-10T00:21:10.890Z Record version: sha256:1e08a4b3b744112f5237b55def106b6aef2629edd2d54989f88eca5c432d6ee6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If assets with asset retirement obligations are components of a larger group of assets (for example, a number of oil wells that make up an entire oil field operation), aggregation techniques may be necessary to derive a collective asset retirement obligation. This Subtopic does not preclude the use of estimates and computational shortcuts that are consistent with the fair value measurement objective when computing an aggregate asset retirement obligation for assets that are components of a larger group of assets. This implementation guidance illustrates paragraph [410-20-30-1](https://asc.understandingaccounting.org/asc/410/20/#410-20-30-1). ##### [410-20-55-12](https://asc.understandingaccounting.org/asc/410/20/#410-20-55-12) Pending content: no Source downloaded (UTC): 2026-09-10T00:21:10.890Z to 2026-09-10T00:21:10.890Z Record version: sha256:d80d012c30cf7c36164d0138c6cdff6f01405f641f9accc8fbcd7c1e3978c14a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This implementation guidance illustrates Section 410-20-15. If, for example, a governmental unit retains the right (an option) to decide whether to require a retirement activity, there is some uncertainty about whether those retirement activities will be required or waived. Regardless of the uncertainty attributable to the option, a legal obligation to stand ready to perform retirement activities still exists, and the governmental unit might require them to be performed. Although the timing and method of settlement of the retirement obligation may depend on future events that may or may not be within the control of the entity, a legal obligation to stand ready to perform retirement activities still exists. The entity should consider the uncertainty about the timing and method of settlement in the measurement of the liability, consistent with a fair value measurement objective, regardless of whether the event that will trigger the settlement is partially or wholly under the control of the entity. ##### [410-20-55-13](https://asc.understandingaccounting.org/asc/410/20/#410-20-55-13) Pending content: no Source downloaded (UTC): 2026-09-10T00:21:10.890Z to 2026-09-10T00:21:10.890Z Record version: sha256:0dadc46ecefe20fcc7756de0210e6ee73340b7c735ef04be40172aa1cd155c11 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This implementation guidance illustrates paragraph [410-20-30-1](https://asc.understandingaccounting.org/asc/410/20/#410-20-30-1). In estimating the fair value of a liability for an asset retirement obligation using an expected present value technique, an entity shall begin by estimating the expected cash flows that reflect, to the extent possible, a marketplace assessment of the cost and timing of performing the required retirement activities. Considerations in estimating those expected cash flows include developing and incorporating explicit assumptions, to the extent possible, about all of the following: 1. a The costs that a third party would incur in performing the tasks necessary to retire the asset 2. b Other amounts that a third party would include in determining the price of the transfer, including, for example, inflation, overhead, equipment charges, profit margin, and advances in technology 3. c The extent to which the amount of a third party's costs or the timing of its costs would vary under different future scenarios and the relative probabilities of those scenarios 4. d The price that a third party would demand and could expect to receive for bearing the uncertainties and unforeseeable circumstances inherent in the obligation, sometimes referred to as a market-risk premium. ##### [410-20-55-14](https://asc.understandingaccounting.org/asc/410/20/#410-20-55-14) Pending content: no Source downloaded (UTC): 2026-09-10T00:21:10.890Z to 2026-09-10T00:21:10.890Z Record version: sha256:428494bf1e6d5c9742fb59ab3739f8656c640ef60f40fedd84a9d5c5c63376b2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. It is expected that uncertainties about the amount and timing of future cash flows can be accommodated by using the expected present value technique and therefore will not prevent the determination of a reasonable estimate of fair value. ##### [410-20-55-15](https://asc.understandingaccounting.org/asc/410/20/#410-20-55-15) Pending content: no Source downloaded (UTC): 2026-09-10T00:21:10.890Z to 2026-09-10T00:21:10.890Z Record version: sha256:9dcf7732ec2d5798077ead69870adeac11083d2ab150b466834f75fd45f97371 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This implementation guidance illustrates paragraph [410-20-30-1](https://asc.understandingaccounting.org/asc/410/20/#410-20-30-1). An entity shall discount expected cash flows using an interest rate that equates to a risk-free interest rate adjusted for the effect of its credit standing (a credit-adjusted risk-free rate). In determining the adjustment for the effect of its credit standing, an entity should consider the effects of all terms, collateral, and existing guarantees on the fair value of the liability. ##### [410-20-55-16](https://asc.understandingaccounting.org/asc/410/20/#410-20-55-16) Pending content: no Source downloaded (UTC): 2026-09-10T00:21:10.890Z to 2026-09-10T00:21:10.890Z Record version: sha256:847f27e5a8d1ea60fa372602762cbb84ac9aa07ab3e48500290ee972b3624d8f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Adjustments for default risk can be reflected in either the discount rate or the expected cash flows. In most situations, an entity will know the adjustment required to the risk-free interest rate to reflect its credit standing. Consequently, it would be easier and less complex to reflect that adjustment in the discount rate. ##### [410-20-55-17](https://asc.understandingaccounting.org/asc/410/20/#410-20-55-17) Pending content: no Source downloaded (UTC): 2026-09-10T00:21:10.890Z to 2026-09-10T00:21:10.890Z Record version: sha256:66d2a8040c7c4339d4d4ea9d9814cd2d931b6d169271ca90014ff008336e670e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In addition, because of the requirements in paragraph [410-20-35-8](https://asc.understandingaccounting.org/asc/410/20/#410-20-35-8) relating to upward and downward adjustments in expected cash flows, it is essential to the operationality of this Subtopic that the credit standing of the entity be reflected in the discount rate. For those reasons, the risk-free rate shall be adjusted for the credit standing of the entity to determine the discount rate. ##### [410-20-55-18](https://asc.understandingaccounting.org/asc/410/20/#410-20-55-18) Pending content: no Source downloaded (UTC): 2026-09-10T00:21:10.890Z to 2026-09-10T00:21:10.890Z Record version: sha256:460fb187d8e7be2f0ff98c8a8ab4f2d8dec2cf2f82a69011efd34d426e3d64a5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This implementation guidance illustrates paragraphs [410-20-35-1 through 35-6](https://asc.understandingaccounting.org/asc/410/20/#410-20-35-1) . In periods subsequent to initial measurement, an entity recognizes the effect of the passage of time on the amount of a liability for an asset retirement obligation. A period-to-period increase in the carrying amount of the liability shall be recognized as an operating item ([accretion expense](https://asc.understandingaccounting.org/glossary/a/#accretion-expense "An amount recognized as an expense classified as an operating item in the statement of income resulting from the increase in the carrying amount of the liability associated with the asset retirement obligation.")) in the statement of income. An equivalent amount is added to the carrying amount of the liability. To calculate accretion expense, an entity shall multiply the beginning of the period liability balance by the credit-adjusted risk-free rate that existed when the liability was initially measured. The liability shall be adjusted for accretion prior to adjusting for revisions in estimated cash flows. ##### [410-20-55-19](https://asc.understandingaccounting.org/asc/410/20/#410-20-55-19) Pending content: no Source downloaded (UTC): 2026-09-10T00:21:10.890Z to 2026-09-10T00:21:10.890Z Record version: sha256:48b2958d9c26d4ec3a84dd73259b1421c4f4ebbd51789e82628ff72dfb37da7b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This implementation guidance illustrates paragraph [410-20-35-8](https://asc.understandingaccounting.org/asc/410/20/#410-20-35-8). Revisions to a previously recorded asset retirement obligation will result from changes in the assumptions used to estimate the expected cash flows required to settle the asset retirement obligation, including changes in estimated probabilities, amounts, and timing of the settlement of the asset retirement obligation, as well as changes in the legal requirements of an obligation. Any changes that result in upward revisions to the expected cash flows shall be treated as a new liability and discounted at the current rate. Any downward revisions to the expected cash flows will result in a reduction of the asset retirement obligation. For downward revisions, the amount of the liability to be removed from the existing accrual shall be discounted at the credit-adjusted risk-free rate that was used at the time the obligation to which the downward revision relates was originally recorded (or the historical weighted-average rate if the year\[s\] to which the downward revision applies cannot be determined). ##### [410-20-55-20](https://asc.understandingaccounting.org/asc/410/20/#410-20-55-20) Pending content: no Source downloaded (UTC): 2026-09-10T00:21:10.890Z to 2026-09-10T00:21:10.890Z Record version: sha256:70ebc47921bcf6c76dda81ec58e14e73289878131c3f9b576f2cc0f583f68a35 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Revisions to the asset retirement obligation result in adjustments of capitalized asset retirement costs and will affect subsequent depreciation of the related asset. Such adjustments are depreciated on a prospective basis. ##### [410-20-55-21](https://asc.understandingaccounting.org/asc/410/20/#410-20-55-21) Pending content: no Source downloaded (UTC): 2026-09-10T00:21:10.890Z to 2026-09-10T00:21:10.890Z Record version: sha256:9b0ca8d87091456a5fe4c5e2ae887d3385e61234dcfa7303edfcbf31c14111fb Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This implementation guidance illustrates Section 410-20-15. There is no conceptual difference between interim property retirements and replacements and those retirements that occur in circumstances in which the retired asset is not replaced. Therefore, any asset retirement obligation associated with the retirement of or the retirement and replacement of a component part of a larger system qualifies for recognition provided that the obligation meets the definition of a liability. The cost of replacement components is excluded. ##### [410-20-55-22](https://asc.understandingaccounting.org/asc/410/20/#410-20-55-22) Pending content: no Source downloaded (UTC): 2026-09-10T00:21:10.890Z to 2026-09-10T00:21:10.890Z Record version: sha256:8f775572c492aebae3ef8ad6b7ee197611bc5574b2e83c0bccc37c3008903600 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Examples of interim property retirements and replacements for component parts of larger systems are components of transmission and distribution systems (utility poles), railroad ties, a single oil well that is part of a larger oil field, and aircraft engines. The assets in those examples may or may not have associated retirement obligations. ##### [410-20-55-23](https://asc.understandingaccounting.org/asc/410/20/#410-20-55-23) Pending content: no Source downloaded (UTC): 2026-09-10T00:21:10.890Z to 2026-09-10T00:21:10.890Z Record version: sha256:855d86420d2e90609c931f6f7a73de13edcd78b91d6afaf1ae82074efb5482a7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. EU Directive 2002/96/EC was adopted on February 13, 2003, and directs EU-member countries to adopt legislation to regulate the collection, treatment, recovery, and environmentally sound [disposal](https://asc.understandingaccounting.org/glossary/d/#disposal "Related to the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 and the Resource Conservation and Recovery Act of 1976: under the Resource Conservation and Recovery Act of 1976, the discharge, deposit, injection, dumping, spilling, leaking, or placing of any solid waste or hazardous waste into or on any land or water so that such solid waste or hazardous waste or any constituent thereof may enter the environment or be emitted into the air or discharged into any waters, including groundwaters. Similarly under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 with regard to hazardous substances.") of electrical and electronic waste equipment. The actual legislation adopted by individual EU-member countries can have different requirements. An entity should apply the guidance herein, adjusted as needed for the specific requirements of the applicable EU-member country. ##### [410-20-55-24](https://asc.understandingaccounting.org/asc/410/20/#410-20-55-24) Pending content: no Source downloaded (UTC): 2026-09-10T00:21:10.890Z to 2026-09-10T00:21:10.890Z Record version: sha256:a42958d6dc226db4d2bc0024148de355239a86e25795a69d5d0213cd217e1f60 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The Directive distinguishes between new and historical waste. All products put on the market on or before August 13, 2005, are deemed to be historical waste equipment for the purposes of the Directive. Example 4 (see paragraph [410-20-55-63](https://asc.understandingaccounting.org/asc/410/20/#410-20-55-63)) does not address the accounting for new waste because there should be little diversity in practice in the accounting for such waste. Costs relating to waste of new equipment are to be borne solely by the producers of the new equipment. This implementation guidance illustrates Section 410-20-15. ##### [410-20-55-25](https://asc.understandingaccounting.org/asc/410/20/#410-20-55-25) Pending content: no Source downloaded (UTC): 2026-09-10T00:21:10.890Z to 2026-09-10T00:21:10.890Z Record version: sha256:d0639eec6a31010bbb2f85ff65c452360ce36b5aacc3e4a7d668de7bf9ebbcb6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Under the Directive, the waste management obligation remains with the commercial user until the historical waste equipment is replaced, at which time the waste management obligation for that equipment may be transferred to the producer of the replacement equipment depending on the law adopted by the applicable EU-member country. If the commercial user does not replace the equipment, the obligation remains with that user until it disposes of the equipment. The Directive provides each EU-member country with the option to obligate commercial users to pay part or all of the costs associated with the historical waste even if the equipment is replaced. In this situation, the obligation would remain (partly or wholly) with the commercial user until the user disposes of the equipment. ##### [410-20-55-26](https://asc.understandingaccounting.org/asc/410/20/#410-20-55-26) Pending content: yes Source downloaded (UTC): 2026-09-10T00:21:10.890Z to 2026-09-10T00:21:10.890Z Record version: sha256:a669952ac673c91d67c0c01c0e2448e3255fab04139e9c6ef3a08cc232bf10d6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The accounting for the initial recognition and measurement of the liability and [asset retirement cost](https://asc.understandingaccounting.org/glossary/a/#asset-retirement-cost "The amount capitalized that increases the carrying amount of the long-lived asset when a liability for an asset retirement obligation is recognized.") should be consistent with paragraphs [410-20-25-1 through 25-4](https://asc.understandingaccounting.org/asc/410/20/#410-20-25-1) . The ability or intent of the commercial user to replace the asset and transfer the obligation does not relieve the user of its present duty or responsibility to settle the obligation. The replacement of the asset may, depending on EU-member country law, transfer the obligation to the replacement producer, and, if so, that transfer would affect the purchase price of the replacement asset. Upon initial recognition of a liability, an entity shall capitalize an asset retirement cost by increasing the carrying amount of the related asset by the same amount as the liability. The accounting subsequent to the initial recognition of the asset and liability should be consistent with the guidance in paragraphs [410-20-35-3 through 35-8](https://asc.understandingaccounting.org/asc/410/20/#410-20-35-3) . Transition date:(P) December 16, 2024; (N) December 16, 2025Transition guidance: [105-10-65-9](https://asc.understandingaccounting.org/asc/105/10/#105-10-65-9)The accounting for the initial recognition and measurement of the liability and [asset retirement cost](https://asc.understandingaccounting.org/glossary/a/#asset-retirement-cost "The amount capitalized that increases the carrying amount of the long-lived asset when a liability for an asset retirement obligation is recognized.") should be consistent with Sections 410-20-25 and 410-20-30. The ability or intent of the commercial user to replace the asset and transfer the obligation does not relieve the user of its present duty or responsibility to settle the obligation. The replacement of the asset may, depending on EU-member country law, transfer the obligation to the replacement producer, and, if so, that transfer would affect the purchase price of the replacement asset. Upon initial recognition of a liability, an entity shall capitalize an asset retirement cost by increasing the carrying amount of the related asset by the same amount as the liability. The accounting subsequent to the initial recognition of the asset and liability should be consistent with the guidance in paragraphs [410-20-35-3 through 35-8](https://asc.understandingaccounting.org/asc/410/20/#410-20-35-3) . ##### [410-20-55-27](https://asc.understandingaccounting.org/asc/410/20/#410-20-55-27) Pending content: no Source downloaded (UTC): 2026-09-10T00:21:10.890Z to 2026-09-10T00:21:10.890Z Record version: sha256:ae1648b709e6d62245316f93a3a6430282e8ceb0d6d794342166321c34bb54c7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If the asset is subsequently replaced, with the obligation being transferred to the producer of the replacement equipment, the commercial user should determine the portion of the total amount paid to the producer that relates to the replacement equipment (the new asset) and the portion that relates to the transfer of the asset retirement obligation. That determination should be based on the [fair value](https://asc.understandingaccounting.org/glossary/f/#fair-value "The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.") of the asset retirement obligation, without the sale of the new asset. The price paid by the commercial user would not include any costs associated with the transfer of the obligation in situations in which the law in the EU-member country obligates commercial users to pay all of the costs associated with the historical waste even if the equipment is replaced. In those situations, the commercial user would not derecognize the liability from its balance sheet upon replacement, but rather when the obligation is ultimately settled. ##### [410-20-55-28](https://asc.understandingaccounting.org/asc/410/20/#410-20-55-28) Pending content: no Source downloaded (UTC): 2026-09-10T00:21:10.890Z to 2026-09-10T00:21:10.890Z Record version: sha256:19b14d5e027ac4fd22290bd7e7bf9988402c61940825345ed428588251d3774e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The new asset should be measured as the residual amount (the excess of the price paid over the fair value of the asset retirement obligation transferred). That amount should be used in determining the new asset's cost basis. The commercial user should derecognize the liability from its balance sheet and recognize a gain or loss based on the difference between the carrying amount of the liability at the date of the sale and the portion of the sales price that relates to the obligation. The producer of the new asset should recognize revenue for the total amount received reduced by the fair value of the obligation upon the transfer of the obligation from the commercial user (that is, on a net basis). The requirements for the producer to measure the revenue from the sale of the new asset as the residual amount and recognize revenue only for the sale of the new asset are applicable for those producers for which the recycling of electronic waste equipment is not a revenue-generating business activity. In situations in which the recycling of equipment is a revenue-generating business activity for the producer, that producer should apply the guidance in Topic 606 on [revenue](https://asc.understandingaccounting.org/glossary/r/#revenue "Inflows or other enhancements of assets of an entity or settlements of its liabilities (or a combination of both) from delivering or producing goods, rendering services, or other activities that constitute the entity's ongoing major or central operations.") from [contracts](https://asc.understandingaccounting.org/glossary/c/#contract "An agreement between two or more parties that creates enforceable rights and obligations.") with [customers](https://asc.understandingaccounting.org/glossary/c/#customer "A party that has contracted with an entity to obtain goods or services that are an output of the entity's ordinary activities in exchange for consideration."). ##### [410-20-55-29](https://asc.understandingaccounting.org/asc/410/20/#410-20-55-29) Pending content: no Source downloaded (UTC): 2026-09-10T00:21:10.890Z to 2026-09-10T00:21:10.890Z Record version: sha256:7fa915fce7782f2f2554566649eb9d720bbdb11c24e722f0d2c6d1adb17286a1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The producer of the new asset should derecognize that liability when the obligation is settled. ##### [410-20-55-30](https://asc.understandingaccounting.org/asc/410/20/#410-20-55-30) Pending content: no Source downloaded (UTC): 2026-09-10T00:21:10.890Z to 2026-09-10T00:21:10.890Z Record version: sha256:996706e3d2080130c232677cabfcf6514db6ee2aa70e4f76a5edef1ee4afa55d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. See Example 4 (paragraph [410-20-55-63](https://asc.understandingaccounting.org/asc/410/20/#410-20-55-63)), which describes accounting for obligations associated with Directive 2002/96/EC on Waste Electrical and Electronic Equipment adopted by the European Union. That Example refers to and paraphrases various provisions of the Directive. Nothing in that Example shall be considered a definitive interpretation of any provision of the Directive for any purpose. #### Illustrations ##### [410-20-55-31](https://asc.understandingaccounting.org/asc/410/20/#410-20-55-31) Pending content: no Source downloaded (UTC): 2026-09-10T00:21:10.890Z to 2026-09-10T00:21:10.890Z Record version: sha256:a566b8ba2d7dcb1c16beae992894fa24676ae67f95350f2a2f7e79bf8076b0c9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the guidance in paragraphs [410-20-35-5 through 35-6](https://asc.understandingaccounting.org/asc/410/20/#410-20-35-5) . After initial measurement, an entity is required to recognize period-to-period changes in an asset retirement obligation liability resulting from the passage of time (accretion expense) and revisions in cash flow estimates. To apply the subsequent measurement provisions of this Subtopic, an entity must identify undiscounted cash flows related to an asset retirement obligation liability irrespective of how the liability was initially measured. Therefore, if an entity obtains the initial fair value from a market price, it must impute undiscounted cash flows from that price. ##### [410-20-55-32](https://asc.understandingaccounting.org/asc/410/20/#410-20-55-32) Pending content: no Source downloaded (UTC): 2026-09-10T00:21:10.890Z to 2026-09-10T00:21:10.890Z Record version: sha256:d4cb46c46d5563d5dd0dd94182140c0a0c968c4fb50d19a7c1374cc37134d117 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the subsequent measurement of a liability in situations where the initial liability is based on a market price. Assume that the liability is initially recognized at the end of period 0 when the market price is $300,000 and the entity's credit-adjusted risk-free rate is 8 percent. As required by this Subtopic, revisions in the timing or the amount of estimated cash flows are assumed to occur at the end of the period after accretion on the beginning balance of the liability is calculated. At the end of each period, the following procedure is used to impute cash flows from the end-of-period market price, compute the change in that price attributable to revisions in estimated cash flows, and calculate accretion expense: 1. a The market price and the credit-adjusted risk-free interest rate are used to impute the undiscounted cash flows embedded in the market price. 2. b The undiscounted cash flows from (a) are discounted at the initial credit-adjusted risk-free rate of 8 percent to arrive at the ending balance of the asset retirement obligation liability per the provisions of this Subtopic. 3. c The beginning balance of the asset retirement obligation liability is multiplied by the initial credit-adjusted risk-free rate of 8 percent to arrive at the amount of accretion expense per the provisions of this Subtopic. 4. d The difference between the undiscounted cash flows at the beginning of the period and the undiscounted cash flows at the end of the period represents the revision in cash flow estimates that occurred during the period. If that change is an upward revision to the undiscounted estimated cash flows, it is discounted at the current credit-adjusted risk-free rate. If that change is a downward revision, it is discounted at the historical weighted-average rate because it is not practicable to separately identify the period to which the downward revision relates. ##### [410-20-55-33](https://asc.understandingaccounting.org/asc/410/20/#410-20-55-33) Pending content: no Source downloaded (UTC): 2026-09-10T00:21:10.890Z to 2026-09-10T00:21:10.890Z Record version: sha256:7b2435081f6eed414593bbf4e91e6e2376fb0a80db2bb1b6774a600a1430fd69 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following table illustrates the subsequent measurement of an asset retirement obligation liability obtained from a market price. - ![](https://asc.understandingaccounting.org/asc-img/GUID-56953A43-DFA1-4653-A934-160B0564C84C-low.gif) Subsequent Measurement of an Asset Retirement Obligation Liability Obtained from a Market Price End of Period 0 1 2 3 Market assumptions: Market price (includes market risk premium) " $300,000 " " $400,000 " " $350,000 " " $380,000 " Current risk-free rate adjusted for entity's credit standing 8.00% 7.00% 7.50% 7.50% Time period remaining 3 2 1 0 Imputed undiscounted cash flows (market price discounted at market rate) " $377,914 " " $457,960 " " $376,250 " " $380,000 " Change in undiscounted cash flows " 377,914 " " 80,046 " " (81,710)" " 3,750 " Discount rate: Current credit-adjusted risk-free rate (for upward revisions) 8.00% 7.00% Historical weighted-average credit-adjusted risk-free rate (for downward revisions) 7.83% Change in undiscounted cash flows discounted at credit-adjusted risk-free rate (current rate for upward revisions and historical rate for downward revisions) " $300,000 " " $69,916 " " $(75,777)" " $3,750 " ##### [410-20-55-34](https://asc.understandingaccounting.org/asc/410/20/#410-20-55-34) Pending content: no Source downloaded (UTC): 2026-09-10T00:21:10.890Z to 2026-09-10T00:21:10.890Z Record version: sha256:285d3e0d9161924da77bb2565ccc4a5004da4026b88bdc051510a829d1895bfc Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following table illustrates the measurement of liability under the provisions of the asset retirement obligation statement. - ![](https://asc.understandingaccounting.org/asc-img/GUID-C939A7D6-C1C6-4C7F-A898-7D4AF5496594-low.gif) Measurement of Liability under Provisions of Asset Retirement Obligation Statement Period Beginning Balance Accretion (8.0%) Change in Cash Flows Ending Balance 0 " $300,000 " " $300,000 " 1 " $300,000 " " $24,000 " " 324,000 " 2 " 324,000 " " 25,920 " " 349,920 " 3 " 349,920 " " 27,994 " " 377,914 " Period Beginning Balance Accretion (7.0%) Change in Cash flows Ending Balance 0 1 " $69,916 " " $69,916 " 2 " $69,916 " " $4,894 " " 74,810 " 3 " 74,810 " " 5,236 " " 80,046 " Period Beginning Balance Accretion (7.83%) Change in Cash Flows Ending Balance 0 1 2 " $(75,777)" " $(75,777)" 3 " $(75,777)" " $(5,933)" " (81,710)" Period Beginning Balance Accretion Change in Cash Flows Ending Balance 0 1 2 3 " $3,750 " " $3,750 " Total Period Beginning Balance Accretion Expense Change in Cash Flows Ending Balance 0 " $300,000 " " $300,000 " 1 " $300,000 " " $24,000 " " 69,916 " " 393,916 " 2 " 393,916 " " 30,814 " " (75,777)" " 348,953 " 3 " 348,953 " " 27,297 " " 3,750 " " 380,000 " ##### [410-20-55-35](https://asc.understandingaccounting.org/asc/410/20/#410-20-55-35) Pending content: no Source downloaded (UTC): 2026-09-10T00:21:10.890Z to 2026-09-10T00:21:10.890Z Record version: sha256:2a4f10b0e86c8fef90a1a39292797d6a5673d07d1c45291f4f9964b669eb4809 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following Cases illustrate the recognition and measurement provisions of this Subtopic: 1. a Initial measurement of a liability for an asset retirement obligation using an expected present value technique, subsequent measurement assuming that there are no changes in expected cash flows, and settlement of the asset retirement obligation liability at the end of its term (Case A) 2. b Subsequent measurement of an asset retirement obligation liability after a change in expected cash flows (Case B) 3. c Recognition and measurement of an asset retirement obligation liability that is incurred over more than one reporting period (Case C) 4. d Accounting for asset retirement obligations that are conditional and that have a low likelihood of enforcement (Case D). ##### [410-20-55-36](https://asc.understandingaccounting.org/asc/410/20/#410-20-55-36) Pending content: no Source downloaded (UTC): 2026-09-10T00:21:10.890Z to 2026-09-10T00:21:10.890Z Record version: sha256:2392c94115fa323214f8120ba694ea7902f60b9a72aae02c2bdca79b1a2e3b72 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Cases A, B, C, and D incorporate simplified assumptions to provide guidance in implementing this Subtopic. For instance, Cases A and B relate to the asset retirement obligation associated with an offshore production platform that also would likely have individual wells and production facilities that would have separate asset retirement obligations. Those Cases also assume straight-line depreciation, even though, in practice, depreciation would likely be applied using a units-of-production method. Other simplifying assumptions are used throughout the Cases. ##### [410-20-55-37](https://asc.understandingaccounting.org/asc/410/20/#410-20-55-37) Pending content: no Source downloaded (UTC): 2026-09-10T00:21:10.890Z to 2026-09-10T00:21:10.890Z Record version: sha256:f54a6fe220353d8bed8732bd615b8905d1336f8e3482a555b1659e02b0d5a035 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Case depicts an entity that completes construction of and places into service an offshore oil platform on January 1, 2003. The entity is legally required to dismantle and remove the platform at the end of its useful life, which is estimated to be 10 years. Based on the requirements of this Subtopic, on January 1, 2003, the entity recognizes a liability for an asset retirement obligation and capitalizes an amount for an asset retirement cost. The entity estimates the initial fair value of the liability using an expected present value technique. The significant assumptions used in that estimate of fair value are as follows: 1. a Labor costs are based on current marketplace wages required to hire contractors to dismantle and remove offshore oil platforms. The entity assigns probability assessments to a range of cash flow estimates as follows. - ![](https://asc.understandingaccounting.org/asc-img/GUID-9B5EFC01-0264-4216-A87C-C41F345F4F70-low.gif) Cash Flow Estimate Probability Assessment Expected Cash Flows " $100,000 " 25% " $25,000 " " 125,000 " 50 " 62,500 " " 175,000 " 25 " 43,750 " " $131,250 " 2. b The entity estimates allocated overhead and equipment charges using the rate it applies to labor costs for transfer pricing (80 percent). The entity has no reason to believe that its overhead rate differs from those used by contractors in the industry. 3. c A contractor typically adds a markup on labor and allocated internal costs to provide a profit margin on the job. The rate used (20 percent) represents the entity's understanding of the profit that contractors in the industry generally earn to dismantle and remove offshore oil platforms. 4. d A contractor would typically demand and receive a premium (market risk premium) for bearing the uncertainty and unforeseeable circumstances inherent in locking in today's price for a project that will not occur for 10 years. The entity estimates the amount of that premium to be 5 percent of the expected cash flows adjusted for inflation. 5. e The risk-free rate of interest on January 1, 2003, is 5 percent. The entity adjusts that rate by 3.5 percent to reflect the effect of its credit standing. Therefore, the credit-adjusted risk-free rate used to compute expected present value is 8.5 percent. 6. f The entity assumes a rate of inflation of 4 percent over the 10-year period. ##### [410-20-55-38](https://asc.understandingaccounting.org/asc/410/20/#410-20-55-38) Pending content: no Source downloaded (UTC): 2026-09-10T00:21:10.890Z to 2026-09-10T00:21:10.890Z Record version: sha256:9a29dc5997a30fe63d8b736f3c3d6a0c28d4fbc669b31332cf4e371e4228f2c2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. On December 31, 2012, the entity settles its asset retirement obligation by using its internal workforce at a cost of $351,000. Assuming no changes during the 10-year period in the expected cash flows used to estimate the obligation, the entity would recognize a gain of $89,619 on settlement of the obligation. The entity would account for the asset retirement obligation as follows. - ![](https://asc.understandingaccounting.org/asc-img/GUID-A37BFCA5-D564-4FCB-B25B-DC0BB4A8F9FC-low.gif) Labor " $195,000 " Allocated overhead and equipment charges (80% of labor) " 156,000 " Total costs incurred " 351,000 " Asset retirement obligation liability " 440,619 " Gain on settlement of obligation " $89,619 " - ![](https://asc.understandingaccounting.org/asc-img/GUID-FC8F8E40-2F4F-488A-BA92-DE811F65903F-low.gif) "Initial Measurement of the Asset Retirement Obligation Liability at January 1, 2003" Expected Cash Flows 1/1/03 Expected labor costs " $131,250 " "Allocated overhead and equipment charges (.80 × $131,250)" " 105,000 " "Contractor's markup \[.20 × ($131,250 + $105,000)\]" " 47,250 " Expected cash flows before inflation adjustment " 283,500 " Inflation factor assuming 4 percent rate for 10 years 1.4802 Expected cash flows adjusted for inflation " 419,637 " "Market-risk premium (.05 × $419,637)" " 20,982 " Expected cash flows adjusted for market risk " $440,619 " Expected present value using credit-adjusted risk-free rate of 8.5 percent for 10 years " $194,879 " - ![](https://asc.understandingaccounting.org/asc-img/GUID-4C6CE17F-EEF3-4A2F-BC35-228F7149F3A6-low.gif) Interest Method of Allocation Year Liability Balance 1/1 Accretion Liability Balance 12/31 2003 " $194,879 " " $16,565 " " $211,444 " 2004 " 211,444 " " 17,973 " " 229,417 " 2005 " 229,417 " " 19,500 " " 248,917 " 2006 " 248,917 " " 21,158 " " 270,075 " 2007 " 270,075 " " 22,956 " " 293,031 " 2008 " 293,031 " " 24,908 " " 317,939 " 2009 " 317,939 " " 27,025 " " 344,964 " 2010 " 344,964 " " 29,322 " " 374,286 " 2011 " 374,286 " " 31,814 " " 406,100 " 2012 " 406,100 " " 34,519 " " 440,619 " - ![](https://asc.understandingaccounting.org/asc-img/GUID-B2951BFC-7B39-4DCE-8D7F-F3454B0C413A-low.gif) Schedule of Expenses Year-End Accretion Expense Depreciation Expense Total Expense 2003 " $16,565 " " $19,488 " " $36,053 " 2004 " 17,973 " " 19,488 " " 37,461 " 2005 " 19,500 " " 19,488 " " 38,988 " 2006 " 21,158 " " 19,488 " " 40,646 " 2007 " 22,956 " " 19,488 " " 42,444 " 2008 " 24,908 " " 19,488 " " 44,396 " 2009 " 27,025 " " 19,488 " " 46,513 " 2010 " 29,322 " " 19,488 " " 48,810 " 2011 " 31,814 " " 19,488 " " 51,302 " 2012 " 34,519 " " 19,488 " " 54,007 " - ![](https://asc.understandingaccounting.org/asc-img/GUID-B3023B97-8C38-4433-9981-470B80B858C6-low.gif) Journal Entries "January 1, 2003:" Long-lived asset (asset retirement cost) " $194,879 " Asset retirement obligation liability " $194,879 " To record the initial fair value of the asset retirement obligation liability "December 31, 2003-2012:" Depreciation expense (asset retirement cost) " 19,488 " Accumulated depreciation " 19,488 " To record straight-line depreciation on the asset retirement cost Accretion expense Per schedule Asset retirement obligation liability Per schedule To record accretion expense on the asset retirement obligation liability "December 31, 2012:" Asset retirement obligation liability " 440,619 " Wages payable " 195,000 " Allocated overhead and equipment charges " (.80 × $195,000)" " 156,000 " Gain on settlement of asset retirement obligation liability " 89,619 " To record settlement of the asset retirement obligation liability ##### [410-20-55-39](https://asc.understandingaccounting.org/asc/410/20/#410-20-55-39) Pending content: no Source downloaded (UTC): 2026-09-10T00:21:10.890Z to 2026-09-10T00:21:10.890Z Record version: sha256:a304f6e805c7e3fca4e9d29bcd9f72ceb521988a26695895ceec7750a38f1532 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Case is the same as Case A with respect to initial measurement of the asset retirement obligation liability. In this Case, the entity's credit standing improves over time, causing the credit-adjusted risk-free rate to decrease by 0.5 percent to 8 percent at December 31, 2004. ##### [410-20-55-40](https://asc.understandingaccounting.org/asc/410/20/#410-20-55-40) Pending content: no Source downloaded (UTC): 2026-09-10T00:21:10.890Z to 2026-09-10T00:21:10.890Z Record version: sha256:7b2106cf825f2536a594ffe009f46a7da8a6cdbcb465b0b4bcddb368640526c3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. On December 31, 2004, the entity revises its estimate of labor costs to reflect an increase of 10 percent in the marketplace. In addition, it revises the probability assessments related to those labor costs. The change in labor costs results in an upward revision to the expected cash flows; consequently, the incremental expected cash flows are discounted at the current credit-adjusted risk-free rate of 8 percent. All other assumptions remain unchanged. The revised estimate of expected cash flows for labor costs is as follows. - ![](https://asc.understandingaccounting.org/asc-img/GUID-79AB8E66-96FD-4154-83FE-8A0DEA496720-low.gif) Cash Flow Estimate Probability Assessment Expected Cash Flows " $110,000 " 30% " $33,000 " " 137,500 " 45 " 61,875 " " 192,500 " 25 " 48,125 " " $143,000 " ##### [410-20-55-41](https://asc.understandingaccounting.org/asc/410/20/#410-20-55-41) Pending content: no Source downloaded (UTC): 2026-09-10T00:21:10.890Z to 2026-09-10T00:21:10.890Z Record version: sha256:15e1326d6a61b7dc6ec7db1146d25dfe10a299d656de08a4743518a3270d22c3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. On December 31, 2012, the entity settles its asset retirement obligation by using an outside contractor. It incurs costs of $463,000, resulting in the recognition of a $14,091 gain on settlement of the obligation. The entity would account for the asset retirement obligation as follows. - ![](https://asc.understandingaccounting.org/asc-img/GUID-D9EE6429-CBA7-4A46-AC1C-AF75DE092FA5-low.gif) Asset retirement obligation liability " $477,091 " Outside contractor " 463,000 " Gain on settlement of obligation " $14,091 " - ![](https://asc.understandingaccounting.org/asc-img/GUID-11CA7D35-9C36-4A31-89A1-3353FC7B9DBE-low.gif) "Initial Measurement of the Asset Retirement Obligation Liability at January 1, 2003" Expected Cash Flows 1/1/03 Expected labor costs " $131,250 " "Allocated overhead and equipment charges (.80 × $131,250)" " 105,000 " "Contractor's markup \[.20 × ($131,250 + $105,000)\]" " 47,250 " Expected cash flows before inflation adjustment " 283,500 " Inflation factor assuming 4 percent rate for 10 years 1.4802 Expected cash flows adjusted for inflation " 419,637 " "Market-risk premium (.05 × $419,637)" " 20,982 " Expected cash flows for market risk " $440,619 " Present value using credit-adjusted risk-free rate of 8.5 percent for 10 years " $194,879 " "Subsequent Measurement of the Asset Retirement Obligation Liability Reflecting a Change in Labor Cost Estimate as of December 31, 2004" Incremental Expected Cash Flows 12/31/04 "Incremental expected labor costs ($143,000 - $131,250)" " $11,750 " "Allocated overhead and equipment charges (.80 × $11,750)" " 9,400 " "Contractor's markup \[.20 × ($11,750 + $9,400)\]" " 4,230 " Expected cash flows before inflation adjustment " 25,380 " Inflation factor assuming 4 percent rate for 8 years 1.3686 Expected cash flows adjusted for inflation " 34,735 " "Market-risk premium (.05 × $34,735)" " 1,737 " Expected cash flows adjusted for market risk " $36,472 " Expected present value of incremental liability using credit-adjusted risk-free rate of 8 percent for 8 years " $19,704 " - ![](https://asc.understandingaccounting.org/asc-img/GUID-69AAD0B6-5F42-4671-AC2F-32F612BEFB71-low.gif) Interest Method of Allocation Year Liability Balance 1/1 Accretion Change in Cash Flow Estimate Liability Balance 12/31 2003 " $194,879 " " $16,565 " " $211,444 " 2004 " 211,444 " " 17,973 " " $19,704 " " 249,121 " (a) 2005 " 249,121 " " 21,078 " " 270,199 " 2006 " 270,199 " " 22,862 " " 293,061 " 2007 " 293,061 " " 24,796 " " 317,857 " 2008 " 317,857 " " 26,894 " " 344,751 " 2009 " 344,751 " " 29,170 " " 373,921 " 2010 " 373,921 " " 31,638 " " 405,559 " 2011 " 405,559 " " 34,315 " " 439,874 " 2012 " 439,874 " " 37,217 " " 477,091 " Schedule of Expenses Year-End Accretion Expense Depreciation Expense Total Expense 2003 " $16,565 " " $19,488 " " $36,053 " 2004 " 17,973 " " 19,488 " " 37,461 " 2005 " 21,078 " " 21,951 " " 43,029 " 2006 " 22,862 " " 21,951 " " 44,813 " 2007 " 24,796 " " 21,951 " " 46,747 " 2008 " 26,894 " " 21,951 " " 48,845 " 2009 " 29,170 " " 21,951 " " 51,121 " 2010 " 31,638 " " 21,951 " " 53,589 " 2011 " 34,315 " " 21,951 " " 56,266 " 2012 " 37,217 " " 21,951 " " 59,168 " (a) "The remainder of this table is an aggregation of 2 layers: the original liability, which is accreted at a rate of 8.5%, and the new incremental liability, which is accreted at a rate of 8.0%." - ![](https://asc.understandingaccounting.org/asc-img/GUID-3BC08C01-CABA-4935-9878-139956508A73-low.gif) Journal Entries "January 1, 2003:" Long-lived asset (asset retirement cost) " $194,879 " Asset retirement obligation liability " $194,879 " To record the initial fair value of the asset retirement obligation liabiity "December 31, 2003:" Depreciation expense (asset retirement cost) " 19,488 " Accumulated depreciation " 19,488 " To record straight-line depreciation on the asset retirement cost Accretion expense " 16,565 " Asset retirement obligation liability " 16,565 " To record accretion expense on the asset retirement obligation liability "December 31, 2004:" Depreciation expense (asset retirement cost) " 19,488 " Accumulated depreciation " 19,488 " To record straight-line depreciation on the asset retirement cost Accretion expense " 17,973 " Asset retirement obligation liability " 17,973 " To record accretion expense on the asset retirement obligation liability Long-lived asset (asset retirement cost) " 19,704 " Asset retirement obligation liability " 19,704 " To record the change in estimated cash flows "December 31, 2005-2012:" Depreciation expense (asset retirement cost) " 21,951 " Accumulated depreciation " 21,951 " To record straight-line depreciation on the asset retirement cost adjusted for the change in cash flow estimate Accretion expense Per schedule Asset retirement obligation liability Per schedule To record accretion expense on the asset retirement obligation liability "December 31, 2012:" Asset retirement obligation liability " 477,091 " Gain on settlement of asset retirement obligation liability " 14,091 " Accounts payable (outside contractor) " 463,000 " To record settlement of the asset retirement obligation liability ##### [410-20-55-42](https://asc.understandingaccounting.org/asc/410/20/#410-20-55-42) Pending content: no Source downloaded (UTC): 2026-09-10T00:21:10.890Z to 2026-09-10T00:21:10.890Z Record version: sha256:09c09339b598a990d05df27a6517d9f77e7497807a42efc4feac3617e685dfcc Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Case depicts an entity that places a nuclear utility plant into service on December 31, 2003. The entity is legally required to decommission the plant at the end of its useful life, which is estimated to be 20 years. Based on the requirements of this Subtopic, the entity recognizes a liability for an asset retirement obligation and capitalizes an amount for an asset retirement cost over the life of the plant as contamination occurs. The following schedule reflects the expected cash flows and respective credit-adjusted risk-free rates used to measure each portion of the liability through December 31, 2005, at which time the plant is 90 percent contaminated. - ![](https://asc.understandingaccounting.org/asc-img/GUID-A96529CB-C0F0-49B0-ABD5-74F651045A05-low.gif) Date Expected Cash Flows Credit-Adjusted Risk-Free Rate 12/31/03 " $23,000 " 9.0% 12/31/04 " 1,150 " 8.5 12/31/05 " 1,900 " 9.2 ##### [410-20-55-43](https://asc.understandingaccounting.org/asc/410/20/#410-20-55-43) Pending content: no Source downloaded (UTC): 2026-09-10T00:21:10.890Z to 2026-09-10T00:21:10.890Z Record version: sha256:419206564072b2fff0f958493a08da829f0f9a929427694132ef5eb572a8f77b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. On December 31, 2005, the entity increases by 10 percent its estimate of expected cash flows that were used to measure those portions of the liability recognized on December 31, 2003, and December 31, 2004, which results in an upward revision to the expected cash flows. Accordingly, the incremental expected cash flows of $2,415 \[$2,300 (10 percent of $23,000) plus $115 (10 percent of $1,150)\] are discounted at the then-current credit-adjusted risk-free rate of 9.2 percent and recorded as a liability on December 31, 2005. The entity would account for the asset retirement obligation as follows. - ![](https://asc.understandingaccounting.org/asc-img/GUID-CD5F58B5-58B9-4819-8F97-2183BDF15AA1-low.gif) Date Incurred 12/31/03 12/31/04 12/31/05 Initial measurement of the asset retirement obligation liability: Expected cash flows adjusted for market risk " $23,000 " " $1,150 " " $1,900 " Credit-adjusted risk-free rate 9.00% 8.50% 9.20% Discount period in years 20 19 18 Expected present value " $4,104 " $244 $390 "Measurement of incremental expected cash flows occurring on December 31, 2005:" Incremental expected cash flows (increase of 10 percent) " $2,415 " "Credit-adjusted risk-free rate at December 31, 2005" 9.20% Discount period remaining in years 18 Expected present value $495 - ![](https://asc.understandingaccounting.org/asc-img/GUID-2ACD6483-87E5-4B98-86C0-1FC980F6143E-low.gif) Carrying Amount of Liability Incurred in 2003 Year Liability Balance 1/1 Accretion (9.0%) New Liability Liability Balance 12/31 2003 " $4,104 " " $4,104 " 2004 " $4,104 " $369 " 4,473 " 2005 " 4,473 " 403 " 4,876 " Carrying Amount of Liability Incurred in 2004 Year Liability Balance 1/1 Accretion (8.5%) New Liability Liability Balance 12/31 2004 $244 $244 2005 $244 $21 265 - ![](https://asc.understandingaccounting.org/asc-img/GUID-76EA5E6E-A596-4092-9996-F71955E193F0-low.gif) "Carrying Amount of Liability Incurred in 2005 Plus Effect of Change in Expected Cash Flows" Year Liability Balance 1/1 Accretion (9.2%) Change in Estimate New Liability Liability Balance 12/31 2005 $495 $390 $885 Carrying Amount of Total Liability Year Liability Balance 1/1 Accretion Change in Estimate New Liability Total Carrying Amount 12/31 2003 " $4,104 " " $4,104 " 2004 " $4,104 " $369 244 " 4,717 " 2005 " 4,717 " 424 $495 390 " 6,026 " - ![](https://asc.understandingaccounting.org/asc-img/GUID-954B61E6-DE4C-45F3-A819-64911E40CFE9-low.gif) Journal Entries "December 31, 2003:" Long-lived asset (asset retirement cost) " $4,104 " Asset retirement obligation liability " $4,104 " To record the initial fair value of the asset retirement obligation liability incurred this period "December 31, 2004:" "Depreciation expense ($4,104 ÷ 20)" 205 Accumulated depreciation 205 To record straight-line depreciation on the asset retirement cost Accretion expense 369 Asset retirement obligation liability 369 To record accretion expense on the asset retirement obligation liability Long-lived asset (asset retirement cost) 244 Asset retirement obligation liability 244 To record the initial fair value of the asset retirement obligation liability incurred this period "December 31, 2005:" "Depreciation expense \[($4,104 ÷ 20) + ($244 ÷ 19)\]" 218 Accumulated depreciation 218 To record straight-line depreciation on the asset retirement cost Accretion expense 424 Asset retirement obligation liability 424 To record accretion expense on the asset retirement obligation liability Long-lived asset (asset retirement cost) 495 Asset retirement obligation liability 495 To record the change in liability resulting from a revision in expected cash flow Long-lived asset (asset retirement cost) 390 Asset retirement obligation liability 390 To record the initial fair value of the asset retirement obligation liability incurred this period ##### [410-20-55-44](https://asc.understandingaccounting.org/asc/410/20/#410-20-55-44) Pending content: no Source downloaded (UTC): 2026-09-10T00:21:10.890Z to 2026-09-10T00:21:10.890Z Record version: sha256:9cfaeb39f08578aadf94db293d1d1d2a82a90c42a185ceb4db636c922f97e4ee Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Case illustrates a timber lease in which the [lessor](https://asc.understandingaccounting.org/glossary/l/#lessor "An entity that enters into a contract to provide the right to use an underlying asset for a period of time in exchange for consideration.") has an option to require the [lessee](https://asc.understandingaccounting.org/glossary/l/#lessee "An entity that enters into a contract to obtain the right to use an underlying asset for a period of time in exchange for consideration.") to settle an asset retirement obligation. Assume an entity enters into a five-year [lease](https://asc.understandingaccounting.org/glossary/l/#lease "A contract, or part of a contract, that conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration.") that grants it the right to harvest timber on a tract of land and that agreement grants the lessor an option to require that the lessee reforest the underlying land at the end of the [lease term](https://asc.understandingaccounting.org/glossary/l/#lease-term "The noncancellable period for which a lessee has the right to use an underlying asset, together with all of the following: Periods covered by an option to extend the lease if the lessee is reasonably certain to exercise that option Periods covered by an option to terminate the lease if the lessee is reasonably certain not to exercise that option Periods covered by an option to extend (or not to terminate) the lease in which exercise of the option is controlled by the lessor."). Based on past history, the lessee believes that the likelihood that the lessor will exercise that option is low. Rather, at the end of the lease, the lessor will likely accept the land without requiring reforestation. The lessee estimates that there is only a 10 percent probability that the lessor will elect to enforce reforestation. Paragraph [842-10-15-1](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-1) explains that Topic 842 does not apply to leases of biological assets, including timber. ##### [410-20-55-45](https://asc.understandingaccounting.org/asc/410/20/#410-20-55-45) Pending content: no Source downloaded (UTC): 2026-09-10T00:21:10.890Z to 2026-09-10T00:21:10.890Z Record version: sha256:7decc4c6e0f9b8d889d372a68ba632d425270b5f05991bba41e7cc04bc8cf374 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. At the end of the first year, 20 percent of the timber has been harvested. The lessee estimates that the possible cash flows associated with performing reforestation activities in 4 years for the portion of the land that has been harvested will be $300,000. When estimating the fair value of the asset retirement obligation liability to be recorded (using an expected present value technique), the lessee incorporates the probability that the restoration provisions will not be enforced. - ![](https://asc.understandingaccounting.org/asc-img/GUID-A6B82EC5-2001-437B-A9A0-3201A5D01AF7-low.gif) Possible Cash Flows Probability Assessment Expected Cash Flows " $300,000 " 10% " $30,000 " - 90 - " $30,000 " Expected present value using credit-adjusted risk-free rate of 8.5 percent for 4 years " $21,647 " ##### [410-20-55-46](https://asc.understandingaccounting.org/asc/410/20/#410-20-55-46) Pending content: no Source downloaded (UTC): 2026-09-10T00:21:10.890Z to 2026-09-10T00:21:10.890Z Record version: sha256:2fa8ead15257d9e12329fdc43952a38c4dcf076a25de171ef2933ddf708737cb Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. During the term of the lease, the lessee should reassess the likelihood that the lessor will require reforestation. For example, if the lessee subsequently determines that the likelihood of the lessor electing the reforestation option has increased, that change will result in a change in the expected cash flows and be accounted for as illustrated in Case B. ##### [410-20-55-47](https://asc.understandingaccounting.org/asc/410/20/#410-20-55-47) Pending content: no Source downloaded (UTC): 2026-09-10T00:21:10.890Z to 2026-09-10T00:21:10.890Z Record version: sha256:c8c35caba99c0d008287a63242754fda8ddc40b5b202321075a777303d2cd09c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example includes four Cases that illustrate when an entity would be required to recognize the fair value of an asset retirement obligation. The Cases do not provide specific guidance for determining when an entity has sufficient information to reasonably estimate the fair value of the asset retirement obligation. The determination as to when an entity has sufficient information to reasonably estimate the fair value of an asset retirement obligation should be based on the guidance in paragraphs [410-20-25-8 through 25-11](https://asc.understandingaccounting.org/asc/410/20/#410-20-25-8) . The Cases illustrate the initial recognition of a [conditional asset retirement obligation](https://asc.understandingaccounting.org/glossary/c/#conditional-asset-retirement-obligation "A legal obligation to perform an asset retirement activity in which the timing and (or) method of settlement are conditional on a future event that may or may not be within the control of the entity.") based on the facts presented. Any differences in facts from those presented in the Cases may result in different conclusions. ##### [410-20-55-48](https://asc.understandingaccounting.org/asc/410/20/#410-20-55-48) Pending content: no Source downloaded (UTC): 2026-09-10T00:21:10.890Z to 2026-09-10T00:21:10.890Z Record version: sha256:c55466ce5b4b8a0ec335e7eaaa770a176f7525a01970321c087464ab21743352 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following Cases illustrate the guidance in paragraphs [410-20-25-7 through 25-11](https://asc.understandingaccounting.org/asc/410/20/#410-20-25-7) and [410-20-30-1](https://asc.understandingaccounting.org/asc/410/20/#410-20-30-1): 1. a An entity has sufficient information to reasonably estimate the fair value of an asset retirement obligation at the time the obligation is incurred (Cases A and B). 2. b An entity does not have sufficient information to reasonably estimate the fair value of an asset retirement obligation at the time the obligation is incurred (Case C). 3. c An entity initially does not have sufficient information and later has sufficient information to reasonably estimate the fair value of an asset retirement obligation (Case D). ##### [410-20-55-49](https://asc.understandingaccounting.org/asc/410/20/#410-20-55-49) Pending content: no Source downloaded (UTC): 2026-09-10T00:21:10.890Z to 2026-09-10T00:21:10.890Z Record version: sha256:9635e8cef7b446eb12e8e9f3fa4929e3cfee29b0e07befdf1291b7ee76d5dd8a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Assume a telecommunications entity owns and operates a communication network that uses wood poles that are treated with certain chemicals. There is no legal requirement to remove the poles from the ground. However, the owner may replace the poles periodically for a number of operational reasons. Once the poles are removed from the ground, they may be disposed of, sold, or reused as part of other activities. There is existing legislation that requires special disposal procedures for the poles in the particular state in which the entity operates. ##### [410-20-55-50](https://asc.understandingaccounting.org/asc/410/20/#410-20-55-50) Pending content: no Source downloaded (UTC): 2026-09-10T00:21:10.890Z to 2026-09-10T00:21:10.890Z Record version: sha256:463efa457497bfe7b9461fed9a8d4e77dce9c272d72382b9e24aa403e93a5c56 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. At the date of purchase of the treated poles, the entity has the information to estimate a range of potential settlement dates, the potential methods of settlement, and the probabilities associated with the potential settlement dates and methods based on established industry practice. Therefore, at the date of purchase, the entity is able to estimate the fair value of the liability for the required disposal procedures using an expected present value technique. ##### [410-20-55-51](https://asc.understandingaccounting.org/asc/410/20/#410-20-55-51) Pending content: no Source downloaded (UTC): 2026-09-10T00:21:10.890Z to 2026-09-10T00:21:10.890Z Record version: sha256:992ae7a4fc1e337d841e204ae451f5279e01d6402347f7312850ed114204fbf0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Although the timing of the performance of the asset retirement activity is conditional on removing the poles from the ground and disposing of them, existing legislation creates a duty or responsibility for the entity to dispose of the poles in accordance with special procedures, and the obligating event occurs when the entity purchases the treated poles. Although the entity may decide not to remove the poles from the ground or may decide to reuse the poles and thereby defer settlement of the obligation, the ability to defer settlement does not relieve the entity of the obligation. The poles will eventually need to be disposed of using special procedures, because the poles will not last forever. Additionally, the ability of the entity to sell the poles prior to disposal does not relieve the entity of its present duty or responsibility to settle the obligation. The sale of the poles transfers the obligation to another entity. The assumption of the obligation by the buyer affects the exchange price. The bargaining of the exchange price reflects the buyer's and seller's individual estimates of the timing and (or) amount of the cost to extinguish the obligation. ##### [410-20-55-52](https://asc.understandingaccounting.org/asc/410/20/#410-20-55-52) Pending content: no Source downloaded (UTC): 2026-09-10T00:21:10.890Z to 2026-09-10T00:21:10.890Z Record version: sha256:eb6703e63be6f90e5f5b58679f6c3c99e36108d6eea65c5753aaf73d06f8011c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The asset retirement obligation should be recognized when the entity purchases the poles because the entity has sufficient information to estimate the fair value of the asset retirement obligation. Because the legal requirement relates only to the disposal of the treated poles, the cost to remove the poles is not included in the asset retirement obligation. However, if there was a legal requirement to remove the treated poles, the cost of removal would be included. ##### [410-20-55-53](https://asc.understandingaccounting.org/asc/410/20/#410-20-55-53) Pending content: no Source downloaded (UTC): 2026-09-10T00:21:10.890Z to 2026-09-10T00:21:10.890Z Record version: sha256:57839a3d93792810c4dcf78956e4cbe260ff05a4676aef8db6cb1ada6b02bd5d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Assume an entity recently purchased several kilns lined with a special type of brick. As of the date of purchase, the kilns had not yet been used in any smelting processes. The kilns have a long useful life, but the bricks are replaced periodically. Because the bricks become contaminated with hazardous chemicals while the kiln is operated, a state law requires that when the bricks are removed, they must be disposed of at a special hazardous waste site. The entity has the information to estimate a range of potential settlement dates, the method of settlement, and the probabilities associated with the potential settlement dates based on its past practice of replacing the bricks to maintain the efficient operation of the kiln. ##### [410-20-55-54](https://asc.understandingaccounting.org/asc/410/20/#410-20-55-54) Pending content: no Source downloaded (UTC): 2026-09-10T00:21:10.890Z to 2026-09-10T00:21:10.890Z Record version: sha256:7f8a91c0fe640412e4d53a5b66be5fea6b8acd89d48388c3484da1207b138a0d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Therefore, at the date the bricks become contaminated because of the operation of the kiln, the entity is able to estimate the fair value of the liability for the required disposal procedures using an expected present value technique. ##### [410-20-55-55](https://asc.understandingaccounting.org/asc/410/20/#410-20-55-55) Pending content: no Source downloaded (UTC): 2026-09-10T00:21:10.890Z to 2026-09-10T00:21:10.890Z Record version: sha256:e010158d0b8cee73c7b3e8f7ed3a10e2d15b5c7e1222709235f795ae5ef4b48b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Although performance of the asset retirement activity is conditional on removing the bricks from the kiln, existing legislation creates a duty or responsibility for the entity to dispose of the bricks at a special hazardous waste site, and the obligating event occurs when the entity contaminates the bricks. As of the purchase date, the kilns have not yet been used in any smelting processes, and the bricks have not yet been contaminated. Therefore, at the date of purchase, no obligation exists because the bricks have not been contaminated and could be disposed of without performing any special disposal activities. ##### [410-20-55-56](https://asc.understandingaccounting.org/asc/410/20/#410-20-55-56) Pending content: no Source downloaded (UTC): 2026-09-10T00:21:10.890Z to 2026-09-10T00:21:10.890Z Record version: sha256:e9f248539a30122a3520951c87cb28562c21b7b683ba4e6b2262836e30b061c6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The fair value of the asset retirement obligation should be recognized once the kilns have been placed into operation and the bricks are contaminated. Although the entity may decide not to remove the bricks from the kiln and thereby defer settlement of the obligation, the ability to defer settlement does not relieve the entity of the obligation. The contaminated bricks will eventually need to be removed and disposed of at a special hazardous waste site, because a kiln will not last forever. Therefore, the obligation to perform the asset retirement activity is unconditional even though uncertainty exists about the timing of settlement. An asset retirement obligation should be recognized once the kilns have been placed into operation and the bricks are contaminated because the entity has sufficient information to estimate the fair value of the asset retirement obligation. The asset retirement obligation is the requirement to dispose of the contaminated bricks at a special hazardous waste site. The cost to remove the bricks is not part of the obligation and should be accounted for as a maintenance or replacement activity. ##### [410-20-55-57](https://asc.understandingaccounting.org/asc/410/20/#410-20-55-57) Pending content: no Source downloaded (UTC): 2026-09-10T00:21:10.890Z to 2026-09-10T00:21:10.890Z Record version: sha256:3226dad257c36a973b1c1110a26bbb14daaa4cffc992754224ece27958a3170d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Assume an entity acquires a factory that contains asbestos. After the acquisition date, regulations are put in place that require the entity to handle and dispose of this type of asbestos in a special manner if the factory undergoes major renovations or is demolished. Otherwise, the entity is not required to remove the asbestos from the factory. The entity has several options to retire the factory in the future including demolishing, selling, or abandoning it. The entity believes it does not have sufficient information to estimate the fair value of the asset retirement obligation because the settlement date or the range of potential settlement dates has not been specified by others and information is not available to apply an expected present value technique. For example, there are no plans or expectation of plans to undertake a major renovation that would require removal of the asbestos or demolition of the factory. The factory is expected to be maintained by repairs and maintenance activities that would not involve the removal of the asbestos. Also, the need for major renovations caused by technology changes, operational changes, or other factors has not been identified. ##### [410-20-55-58](https://asc.understandingaccounting.org/asc/410/20/#410-20-55-58) Pending content: no Source downloaded (UTC): 2026-09-10T00:21:10.890Z to 2026-09-10T00:21:10.890Z Record version: sha256:1b61c454a7cf820e4fbd55785567d4eebf891013d1c89b1eaf5f2978a431a1d0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Although the timing of the performance of the asset retirement activity is conditional on the factory undergoing major renovations or being demolished, existing regulations create a duty or responsibility for the entity to remove and dispose of asbestos in a special manner, and the obligating event occurs when the regulations are put in place. Therefore, an asset retirement obligation should be recognized when regulations are put in place if the entity can reasonably estimate the fair value of the liability. In this Case, the entity believes that there is an indeterminate settlement date for the asset retirement obligation because the range of time over which the entity may settle the obligation is unknown or cannot be estimated. Therefore, the entity cannot reasonably estimate the fair value of the liability. Accordingly, the entity would not recognize a liability for the asset retirement obligation when regulations are put in place, but it should disclose a description of the obligation, the fact that a liability has not been recognized because the fair value cannot be reasonably estimated, and the reasons why fair value cannot be reasonably estimated. The entity would recognize a liability in the period in which sufficient information is available to reasonably estimate its fair value. ##### [410-20-55-59](https://asc.understandingaccounting.org/asc/410/20/#410-20-55-59) Pending content: no Source downloaded (UTC): 2026-09-10T00:21:10.890Z to 2026-09-10T00:21:10.890Z Record version: sha256:9cd9177ffb1483e76fbac379d9d54a0aa95eaebbcb82235f956107786a03285a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Assume an entity acquires a factory that contains asbestos. At the acquisition date, regulations are in place that require the entity to handle and dispose of this type of asbestos in a special manner if the factory undergoes major renovations or is demolished. Otherwise, the entity is not required to remove the asbestos from the factory. The entity has several options to retire the factory in the future including demolishing, selling, or abandoning it. At the acquisition date, it is not evident that the fair value of the obligation is embodied in the acquisition price of the factory because both the seller and the buyer of the factory believed the obligation had an indeterminate settlement date, an active market does not exist for the transfer of the obligation, and sufficient information does not exist to apply an expected present value technique. Ten years after the acquisition date, the entity obtains additional information based on changes in demand for the products manufactured at that factory. At that time, the entity has the information to estimate a range of potential settlement dates, the potential methods of settlement, and the probabilities associated with the potential settlement dates and potential methods of settlement. Therefore, at that time the entity is able to estimate the fair value of the liability for the special handling of the asbestos using an expected present value technique. ##### [410-20-55-60](https://asc.understandingaccounting.org/asc/410/20/#410-20-55-60) Pending content: no Source downloaded (UTC): 2026-09-10T00:21:10.890Z to 2026-09-10T00:21:10.890Z Record version: sha256:f6007a3911d0db0c73fecfbf32a565c53e2f562e917da654a6ceed8c8473858f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Although timing of the performance of the asset retirement activity is conditional on the factory undergoing major renovations or being demolished, existing regulations create a duty or responsibility for the entity to remove and dispose of asbestos in a special manner, and the obligating event occurs when the entity acquires the factory. In this Case, regulations are in place at the date of acquisition that require the entity to handle and dispose of the asbestos in a special manner. Therefore, the obligating event is the acquisition of the factory. If regulations were enacted after the date of acquisition, the obligating event would be the enactment of the regulations (see Case C). ##### [410-20-55-61](https://asc.understandingaccounting.org/asc/410/20/#410-20-55-61) Pending content: no Source downloaded (UTC): 2026-09-10T00:21:10.890Z to 2026-09-10T00:21:10.890Z Record version: sha256:3b33f4cf6f656b8b2a77537457ef48629fb2a200b012e1dc380093f7b3dded12 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Although the entity may decide to abandon the factory and thereby defer settlement of the obligation for the foreseeable future, the ability to defer settlement does not relieve the entity of the obligation. The asbestos will eventually need to be removed and disposed of in a special manner, because no building will last forever. Additionally, the ability of the entity to sell the factory does not relieve the entity of its present duty or responsibility to settle the obligation. The sale of the asset would transfer the obligation to another entity and that transfer would affect the selling price. Therefore, the obligation to perform the asset retirement activity is unconditional even though uncertainty exists about the timing and method of settlement. ##### [410-20-55-62](https://asc.understandingaccounting.org/asc/410/20/#410-20-55-62) Pending content: no Source downloaded (UTC): 2026-09-10T00:21:10.890Z to 2026-09-10T00:21:10.890Z Record version: sha256:e099ec89fe557d901539c3ed035cdf3e9b2352d6ec0054e32904b85cbf8a3ed8 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In this Case, an asset retirement obligation is not recognized when the entity acquires the factory because the entity does not have sufficient information to estimate the fair value of the obligation. The entity would disclose a description of the obligation, the fact that a liability has not been recognized because the fair value cannot be reasonably estimated, and the reasons why fair value cannot be reasonably estimated. An asset retirement obligation would be recognized by this entity 10 years after the acquisition date because that is when the entity has sufficient information to estimate the fair value of the asset retirement obligation. ##### [410-20-55-63](https://asc.understandingaccounting.org/asc/410/20/#410-20-55-63) Pending content: no Source downloaded (UTC): 2026-09-10T00:21:10.890Z to 2026-09-10T00:21:10.890Z Record version: sha256:e6175f5980dcacf4ecd180aa5723397c447fd5e714385126e82948ee3e3890e8 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the guidance in paragraphs [410-20-55-23 through 55-29](https://asc.understandingaccounting.org/asc/410/20/#410-20-55-23) . ##### [410-20-55-64](https://asc.understandingaccounting.org/asc/410/20/#410-20-55-64) Pending content: no Source downloaded (UTC): 2026-09-10T00:21:10.890Z to 2026-09-10T00:21:10.890Z Record version: sha256:1a21fd4bb86b7d43ff195bf5d6bac18360c14d2a3626764554bc4aee41407bb5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Assume an entity (a commercial user) is currently using electronic equipment that must be disposed of in accordance with the requirements of EU Directive 2002/96/EC. The EU-member country has not yet adopted the legislation. The entity has the ability either to replace the equipment or to dispose of the equipment without replacing it. In the EU-member country in which the entity operates, the producer of the replacement equipment will be wholly responsible for disposal costs if and when the equipment is replaced. The recycling of electronic waste equipment is not a revenue-generating business activity of the producer. ##### [410-20-55-65](https://asc.understandingaccounting.org/asc/410/20/#410-20-55-65) Pending content: no Source downloaded (UTC): 2026-09-10T00:21:10.890Z to 2026-09-10T00:21:10.890Z Record version: sha256:c73bc776482c343ec345ae0fbff4a81619041b1d9fbe298b2b126dbbbe425269 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Upon the adoption of the legislation, the entity should recognize a liability for the fair value of the asset retirement obligation. Upon initial recognition of a liability, the entity should capitalize an asset retirement cost by increasing the carrying amount of the related asset by the same amount as the liability. The accounting subsequent to the initial recognition of the asset and liability should be consistent with the guidance in paragraphs [410-20-35-3 through 35-6](https://asc.understandingaccounting.org/asc/410/20/#410-20-35-3) . ##### [410-20-55-66](https://asc.understandingaccounting.org/asc/410/20/#410-20-55-66) Pending content: no Source downloaded (UTC): 2026-09-10T00:21:10.890Z to 2026-09-10T00:21:10.890Z Record version: sha256:859808b7208b861610634b115e851047beaa2b344f57ea0d686f9f95a21e1b49 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The waste management obligation remains with the commercial user until the historical waste equipment is replaced or is disposed of by the commercial user itself. Assuming the equipment is replaced, the entity should determine the portion of the purchase price that relates to the cost of the replacement asset and the portion that relates to the assumption of the obligation by the producer. That determination should be based on the fair value of the obligation, without the sale of the new asset. The entity should recognize a gain or loss based on the difference between the carrying amount of the liability at the date of the sale and the portion of the sales price that relates to the obligation. The producer should recognize revenue for the total amount received, reduced by the fair value of the obligation, and recognize a liability for the fair value of the obligation upon transfer of the obligation from the commercial user. Assuming the equipment is disposed of by the entity rather than replaced, the entity should recognize a gain or loss based on the difference between the carrying amount of the liability at the date of the disposal and the actual cost of disposal. See paragraphs [820-10-55-77 through 55-81](https://asc.understandingaccounting.org/asc/820/10/#820-10-55-77) for an illustration of an entity required to estimate the fair value of an asset retirement obligation. ##### [410-20-55-67](https://asc.understandingaccounting.org/asc/410/20/#410-20-55-67) Pending content: no Source downloaded (UTC): 2026-09-10T00:21:10.890Z to 2026-09-10T00:21:10.890Z Record version: sha256:c5663e5a698a73667f0b0b7646831ebfe5c91944f08503e37e5fd5cd878a5df9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For the financing of historical waste, the Directive also distinguishes between historical waste from private households and historical waste from "users other than private households" (referred to as "commercial users").