Final answer:
The fair value of an asset retirement obligation is measured by the present value of estimated future cash flows required to retire the obligation.
Step-by-step explanation:
The amount used to measure the fair value of an asset retirement obligation is the present value of estimated future cash flows required to settle the obligation. An asset retirement obligation generally involves costs that a company expects to incur in the future to retire a long-lived asset, and in accounting, it is customary to discount those expected future cash flows back to their present value. This is because valuing these future costs in terms of present dollars allows for a more accurate reflection of the obligation on the company's financial statements.