Asset Retirement Obligation

DEFINITION of 'Asset Retirement Obligation'

An accounting rule established by Financial Accounting Standards Board Rule No. 143 in June 2001 that requires public companies to recognize the fair value of retirement obligations for tangible, long-lived assets in order to make their balance sheets more accurate. This focus on the balance sheet represents a change from the income-statement approach many businesses previously used.

BREAKING DOWN 'Asset Retirement Obligation'

An asset is considered retired when it is permanently taken out of service, such as through sale or disposal. Retirement obligations can be recognized either when the asset is placed in service or during its operating life at the point when its removal obligation is incurred.

Accounting for asset retirement obligations is a complex process requiring the assistance of a CPA.

RELATED TERMS
  1. Retirement Planning

    The process of determining retirement income goals and the actions ...
  2. Tangible Asset

    Assets that have a physical form. Tangible assets include both ...
  3. Carrying Value

    An accounting measure of value, where the value of an asset or ...
  4. Clean Your Skirts

    A slang phrase used in the equity market to refer to a trader's ...
  5. Active Asset

    An asset that is used by a business in its daily or routine operations. ...
  6. Corporate Debt Restructuring

    The reorganization of a company's outstanding obligations, often ...
Related Articles
  1. Investing Basics

    Reading The Balance Sheet

    Learn about the components of the statement of financial position and how they relate to each other.
  2. Financial Advisors

    Retirement Savings: How Much is Enough?

    Sure, you can never save too much for retirement, but just how much is enough?
  3. Investing Basics

    5 Tips For Reading A Balance Sheet

    If you know how to read it, the balance sheet provides valuable information on a potential investment.
  4. Investing Basics

    Closing In On Retirement? Read These Tips

    If you're within 10 years of retiring, you and your financial planner should heed these essential tips.
  5. Retirement

    Retirement Balance Sheet: Debt Owed To Yourself

    Thinking of retirement as a debt, where does your retirement sit on your balance sheet? For it's not a debt you owe the bank, it's a debt you owe yourself.
  6. Retirement

    5 Steps To A Retirement Plan

    These considerations will help you make a realistic and thorough retirement plan.
  7. Options & Futures

    Financial Statements: Long-Lived Assets

    By David Harper (Contact David)In the preceding section, we examined working capital, which refers to the current assets and liabilities of a company. In this section, we take a closer look at ...
  8. Retirement

    Retirement Planning In A Changing World

    Retiring at the age of 65 is quickly becoming a thing of the past. So, what is happening to make this change?
  9. Retirement

    10 Things You Must Know Before You Retire

    Don't put off your retirement planning - these 10 steps can make your later years much more manageable.
  10. Financial Advisors

    Retirement Looming? Here are 6 Essential Tips

    Planning on retiring in the next decade or so? Here is a checklist for both advisors and those planning on their own.
RELATED FAQS
  1. What does a sample plan using the 4% retirement rule look like?

    Discover how the 4% retirement rule can work as part of a plan to achieve increasing retirement income if investments perform ... Read Answer >>
  2. What is an aggregate limit and what type of insurance is it usually associated with?

    Understand why tangible assets are important to a company. Learn why the ownership of a tangible asset has benefits as well ... Read Answer >>
  3. What is the difference between tangible and intangible assets?

    Discover the difference between tangible assets and intangible assets and the types of assets that are in each. Additionally, ... Read Answer >>
  4. Why should you invest in tangible assets?

    Read about some of the possible benefits of investing in tangible assets, such as bullion, real estate, art, collectibles ... Read Answer >>
  5. What's the difference between a trial balance and a balance sheet?

    Discover what is included in a trial balance and a balance sheet, and learn about what sets these two accounting reports ... Read Answer >>
  6. How should investors interpret accounts receivable information on a company's balance ...

    Analyze accounts receivable information on a company's balance sheet carefully. Receivables offer confidence of future cash ... Read Answer >>
Hot Definitions
  1. Demand Curve

    The demand curve is a graphical representation of the relationship between the price of a good or service and the quantity ...
  2. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  3. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
  4. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  5. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  6. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
Trading Center