Question

The difference between an asset retirement liability and the probability weighted expected cash flows is recognized as ______ expense each period?

1) amortization
2) depletion
3) depreciation
4) accretion

Answer 1

The difference between an asset retirement liability and the probability weighted expected cash flows is recognized as accretion expense each period.

Step-by-step explanation:

The difference between an asset retirement liability and the probability weighted expected cash flows is recognized as accretion expense each period. Accretion expense is the process of gradually recognizing and increasing the liability over time, based on the estimated present value of future cash flows. This is similar to the concept of accretion in accounting for the gradual increase in the value of a bond or loan.