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<blockquote data-quote="joshpoints" data-source="post: 1718250" data-attributes="member: 546465">Does anyone know what fundamental accounting principle FASB statement number 143 breaks?&nbsp; It involves asset obligation retirements.&nbsp; For example you have an oil platform in the ocean that has an expected life of 20 years.&nbsp; Federal law requires you remove the oil platform and return the area to its &quot;previous condition&quot;.&nbsp; You determine this will cost you $100,000.&nbsp; You must take this $100,000 and determine the discount rate which we will say is 10% and put the $100,000 on your books at its present value as an obligation.&nbsp; So the present value would be $14,864 (rounded to nearest dollar).&nbsp; Every year 10% is added to this balance causing the obligation to increase so $14,864*.1=1,486 making new balance $16,350.&nbsp; This would continue to increase the obligation balance until the end of the 20th year at which time the balance would become $100,000.&nbsp; At the same time this is happening depreciation expense is occurring for the obligation.&nbsp; So (14,864/20)=743.&nbsp; Journal entries look like this: ARO=asset retirement obligation.&nbsp; Apparently the journal entris don&#039;t look right when I post it so I&#039;ll just type it out.1/1/04Asset&nbsp; Debit&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;&nbsp; 500,000Cash&nbsp;&nbsp; Credit&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; 500,000Asset&nbsp;&nbsp; Debit&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; 14,864ARO Credit&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; 14,86412/31/04Accretion Exp. Debit&nbsp; &nbsp; &nbsp; &nbsp; &nbsp;&nbsp; 1,486ARO Credit&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; 1,486Depr. exp. (for ARO) Debit&nbsp;&nbsp; 743Accum Depr. Credit&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;&nbsp; 74312/31/05Accretion Exp.&nbsp; &nbsp; &nbsp;&nbsp; Debit&nbsp; &nbsp;&nbsp; 1,635------------------------------&amp;gt;(14864+1486)*.1=1635ARO&nbsp; Credit&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;&nbsp; 1,635Depr. exp&nbsp; (for ARO)&nbsp; Debit 743Accum Depr. Credit&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;&nbsp; 743This continues until end of 20th year then another entry occurs where ARO is reduced.<a href="http://www.fasb.org/pdf/fas143.pdf" target="_blank">http://www.fasb.org/pdf/fas143.pdf</a>Thank you very much.&nbsp; I&#039;m not sure if it is a reliability issue, relevence consistency, comparability etc.?</blockquote>

[QUOTE="joshpoints, post: 1718250, member: 546465"] Does anyone know what fundamental accounting principle FASB statement number 143 breaks? It involves asset obligation retirements. For example you have an oil platform in the ocean that has an expected life of 20 years. Federal law requires you remove the oil platform and return the area to its "previous condition". You determine this will cost you $100,000. You must take this $100,000 and determine the discount rate which we will say is 10% and put the $100,000 on your books at its present value as an obligation. So the present value would be $14,864 (rounded to nearest dollar). Every year 10% is added to this balance causing the obligation to increase so $14,864*.1=1,486 making new balance $16,350. This would continue to increase the obligation balance until the end of the 20th year at which time the balance would become $100,000. At the same time this is happening depreciation expense is occurring for the obligation. So (14,864/20)=743. Journal entries look like this: ARO=asset retirement obligation. Apparently the journal entris don't look right when I post it so I'll just type it out. 1/1/04 Asset Debit 500,000 Cash Credit 500,000 Asset Debit 14,864 ARO Credit 14,864 12/31/04 Accretion Exp. Debit 1,486 ARO Credit 1,486 Depr. exp. (for ARO) Debit 743 Accum Depr. Credit 743 12/31/05 Accretion Exp. Debit 1,635------------------------------>(14864+1486)*.1=1635 ARO Credit 1,635 Depr. exp (for ARO) Debit 743 Accum Depr. Credit 743 This continues until end of 20th year then another entry occurs where ARO is reduced. [URL="http://www.fasb.org/pdf/fas143.pdf"]http://www.fasb.org/pdf/fas143.pdf[/URL] Thank you very much. I'm not sure if it is a reliability issue, relevence consistency, comparability etc.? [/QUOTE]

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