To: The Files
Date: January 19, 2016
RE: Asset Retirement Obligations / for Lack of Information the “Client”
Purpose: To determine the appropriate accounting treatment for potential asset retirement obligations associated with existing “asbestos” in a warehouse owned by the client (LOI).
* Client owns and operates fifty warehouses located in several states.
* Twenty-five of these warehouses contain asbestos, a cancer causing substance.
* Twenty-three of theses warehouse are located in states that have special laws and regulations with requiring special handling upon the demolitions or significant remodeling of the warehouses.
* Thirteen ...view middle of the document...
The client declared that the obligations are not probable or that there is no sufficient information available.
* 25-6. states “identify all its asset retirement obligations” and “An entity has sufficient information to reasonably estimate the fair value of an asset retirement obligation if any of the following conditions exist:
a. It is evident that the fair value of the obligation is embodied in the acquisition price of the asset.
b. An active market exists for the transfer of the obligation.
c. Sufficient information exists to apply an expected present value technique.”
* 25-7 states “The obligation to perform the asset retirement activity is unconditional even though uncertainty exists”
* 25-8 sufficient information exists: date and method of settlement is specified by law or contract.
* 25-10 states “the liability would be initially recognized in the period in which sufficient information exists to estimate a range of potential settlement dates that is needed to employ a present value technique to estimate fair value”
* 25-13 states “the obligation to perform the asset retirement activity is unconditional even though uncertainty exists about the timing and (or) method of settlement”
* 25-14 states “In situations in which the conditional aspect has only 2 outcomes and there is no...