Question

Asset retirement obligations are recorded as a liability and measured at?

1) net realizable value
2) net present value
3) fair value
4) historical cost

Answer 1

Asset retirement obligations are measured at net present value, reflecting the time-adjusted cost expected to be incurred for asset retirement.

Step-by-step explanation:

Asset retirement obligations are recorded as a liability on a company's balance sheet and are measured at their net present value. The net present value is the current worth of a future series of cash flows, discounted at an appropriate discount rate. Unlike assets measured at historical cost, net realizable value, or fair value, net present value takes into account the time value of money and provides an estimate of the cost that the company will likely incur in the future to retire the asset. Therefore, when considering how to account for these obligations, the answer is that they are measured at net present value (2).