Final answer:
An asset retirement obligation must be recognized only if it is a legal obligation. It refers to the financial responsibility a company has to retire a long-term asset at the end of its useful life.
Step-by-step explanation:
An asset retirement obligation must be recognized only if it is a legal obligation. It refers to the financial responsibility a company has to retire a long-term asset, such as a building or machinery, at the end of its useful life. This obligation arises when there are laws, regulations, or agreements that require the company to remove or restore the asset.