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Chapter 4 — Accounting for Asset Retirement Obligations

4.2 Overview of ASC 410-20

4.2 Overview of ASC 410-20

ASC 410-20 provides the relevant guidance on accounting for AROs and generally applies to “[l]egal obligations associated with the retirement of a tangible long-lived asset that result from the acquisition, construction, or development and (or) the normal operation of a long-lived asset” (ASC 410-20-15-2). An ARO is recognized when incurred if a reasonable estimate of fair value can be made, and it should be initially measured at fair value. If its fair value cannot be reasonably estimated, the ARO should be recognized when a reasonable estimate of fair value can be made. Uncertainty about the timing of settlement of the ARO does not affect ARO recognition but will affect measurement of the ARO.