8.1.2 Example - Asset Retirement Obligation — Sage Intacct Technical Solutions

✔ Applies to US GAAP (ASC 410) Finance Leases

✔ Applies to US GAAP (ASC 410) Operating Leases

✘Does not apply to IFRS (IAS 37)

✘Does not apply to UK GAAP (FRS 102)

The lessee must restore a property at lease end, projected cost $50,000 in 10 years. If the present value is $30,000 (at 5%). At commencement:

  
      Account
      Debit
      Credit
    
      Right of Use Asset
      $30,000
      
      Asset Retirement Obligation
      
      $30,000
    
Record initial ARO: a provision (liability) at PV of $50k due in 10 years, and include this cost in the ROU asset.

Interest adds over time:

  
      Account
      Debit
      Credit
    
      Interest Expense
      $1,500
      
      Asset Retirement Obligation
      
      $1,500
    
Accrete the obligation by 5% each year. The liability will grow from $30k to $50k over 10 years, with interest expense recognized.

Doing it in Sage Intacct Lease Accounting

This can be treated as a separate lease.