Asset Retirement Obligation

AAA

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.

INVESTOPEDIA EXPLAINS '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. Accounting

    The systematic and comprehensive recording of financial transactions ...
  2. Financial Accounting Standards ...

    A seven-member independent board consisting of accounting professionals ...
  3. Tangible Asset

    Assets that have a physical form. Tangible assets include both ...
  4. Obligation

    The legal responsibility to meet the terms of a contract. If ...
  5. Asset

    1. A resource with economic value that an individual, corporation ...
  6. Certified Public Accountant - CPA

    A designation given by the American Institute of Certified Public ...
RELATED FAQS
  1. What is the difference between IAS and GAAP?

    To answer this question, we must first define what IAS and GAAP are, in order to get a better grasp of the function they ... Read Full Answer >>
  2. What is the difference between principles-based accounting and rules-based accounting?

    Almost all companies are required to prepare their financial statements as set out by the Financial Accounting Standards ... Read Full Answer >>
  3. How can I get a "pensionado" visa to retire in Costa Rica?

    In order to receive a pensionado visa and retire in Costa Rica, a retiree needs to fill out a list of key documents from ... Read Full Answer >>
  4. What are some examples of a deferred tax liability?

    In the United States, laws allow companies to maintain two separate sets of books for financial and tax purposes. Because ... Read Full Answer >>
  5. How can the first-in, first-out (FIFO) method be used to minimize taxes?

    The first-in, first-out (FIFO) inventory cost method can be used to minimize taxes during periods of rising prices, since ... Read Full Answer >>
  6. Why is the use of contra accounts so important for maintaining ledgers?

    Contra accounts have been used in financial accounting to verify the balance of another corresponding account since Renaissance ... Read Full Answer >>
Related Articles
  1. Options & Futures

    A New Approach To Equity Compensation

    The new financial accounting standard known as FAS 123R could take a bite out of your portfolio. Find out why here.
  2. Options & Futures

    Advanced Financial Statement Analysis

    Learn what it means to do your homework on a company's performance and reporting practices before investing.
  3. Economics

    What are Accounting Principles?

    The term accounting principles refers to rules and guidelines companies use to help them record their business and financial transactions.
  4. Economics

    Understanding the Accounting Cycle

    An accounting cycle consists of the traditional procedures performed to record business events and transactions in a company’s accounting records.
  5. Retirement

    Can You Retire In Malaysia With $200,000?

    A low cost of living, street food fit for foodies and unspoiled rainforest and beaches are just a few of the reasons Malaysia is worth looking at as a retirement destination.
  6. Fundamental Analysis

    When & Why Should a Company Use LIFO

    By using LIFO (last in, first out) when prices are rising, companies reduce their taxes and also better match revenues to their latest costs.
  7. Fundamental Analysis

    The Importance Of Analyzing Accounts Receivable

    While investors often focus on revenues, net income, and earnings per share, they should not overlook the importance of analyzing accounts receivable.
  8. Investing Basics

    Explaining Write-Downs

    A write-down is a reduction in the book value of an asset because it is overvalued compared to the market value.
  9. Retirement

    Find The Top Retirement Cities In South Korea

    South Korea's busy, modern capital, Seoul, has traffic signs in Korean writing only and English is not widely spoken. Check retirees' visa rules closely.
  10. Investing

    Apple or Google: Which is the Better Bet?

    Apple and Google have made many investors rich since the turn of the century. Which is more appealing going forward?

You May Also Like

Hot Definitions
  1. Mixed Economic System

    An economic system that features characteristics of both capitalism and socialism.
  2. Net Worth

    The amount by which assets exceed liabilities. Net worth is a concept applicable to individuals and businesses as a key measure ...
  3. Stop-Loss Order

    An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit ...
  4. Covered Call

    An options strategy whereby an investor holds a long position in an asset and writes (sells) call options on that same asset ...
  5. Butterfly Spread

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
  6. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
Trading Center