Open post

Accounting for Asset Retirement

When an asset is permanently removed from service, it is counted as retired. Some processes that can lead to asset retirement include disposal because of obsolescence or a sale to another party. Long-term assets typically make up much of the assets of a company, so it is important to place controls on them to ensure the asset retirement processes fit standard accounting rules. Although these methods sometimes require the help of a certified public accountant, you can take some steps to smooth out the process.

What is Asset Retirement?

Accounting for asset retirement can be referred to as the accounting principle set by the FASB (Financial Accounting Standards Board). This principle requires public companies to acknowledge the fair value of physical, long-term assets retirement obligations. This rule ensures that the precise value of a company’s existing assets is carried on the balance sheets. This balance sheet is similar to the income statement based processes previously used by some companies. Although small businesses may not be affected by this rule, it is smart to follow it to ensure accurate accounting.

Asset Retirement Obligations (ARO)

Accounting for asset retirement obligations is designed to address a company’s legal responsibilities stemming from standard operation, growth, building, or acquisition of a physical asset. Asset retirement obligations can either be incurred at the starting point of a company’s asset life or during its operating lifetime. ARO does not cover other obligations related to an asset inappropriate operation such as those liabilities affiliated to environmental remediation processes. Check here.

Balance Sheet and Asset Retirement

According to rule 143 of FASB, a company must elevate an asset retirement obligation at the fair value of that asset. The fair value of the retired asset is a representation of the liability of the balance sheet of the company. The fair value is the amount a consenting and knowledgeable party would agree to take over the obligation of a particular asset. The FASB rule allows for a certified public accountant (CPA) to estimate the fair value if there is no available market for the retired asset or no such parties exist.

Variables and Asset Retirement

Calculating asset retirement obligations vary from case to case and can be complicated. However, there are two variables that are often used. The first variable involves estimating the cash flow that was received from the last asset. These estimates require accurate forecasts of profit margins, technological process, employee wages, and inflation rates. The level of effective interest rate is the other variable. This reflects interest rates and credit risk adjustments from year to year.

Asset Retirement Obligation Example

A typical example is an oil drilling site with a lease of 40 years. A well is created and a drilling platform is erected after about 5 years of holding the lease. The well and the platform have a 40 years estimated useful life. Presently, the cost of removing the well and platform as well as cleaning up the site is $15,000. It is estimated that the inflation for that remediation and removal work over the next 40 years is about 2.5 percent/year. So the credit-adjusted risk-free borrowing rate is 8 percent. Since the life of the well and the drilling platform can’t go beyond the life of the lease, it is expected that rig and well will be retired after 35 years. Check out this site:

Open post
oil and gas industry

Top Challenges in the oil and gas industry

There’s might be some great advantages of being in the oil and gas industry, but the oil and gas consulting firms will tell you, that there will also be some top challenges that you need to overcome. Sometimes, we are just looking at the pros and benefits of something, but we don’t always look at the challenges that also lie ahead. This is why it’s important to make sure that you’re aware of the challenges of being in the oil and gas industry.

Can be risky to invest in oil and gas

If you’re looking for a stable way to invest in something, then the oil and gas industry might be your answer, but you need to know about the challenge of investing in oil and gas.

The oil and gas consulting firm are normally telling investors, that even if oil and natural gas seem like a good investment, it is somewhat risky. This is because of the fact that the oil and natural gas prices are not staying stable. Sometimes your investment will be worth a lot of money, but sometimes you even might lose some money. It is important to know that if you’re going to invest in oil and natural gas, you might end up losing more money that you’re review here!

Unsteady income

Also some challenge that you need to be aware of, when you’re thinking about investing in the oil and gas industry, is that you will have an unsteady income, when you’re living off the profit that your investment is making.

This is also because of the fact that the oil and gas prices don’t stay steady for long. This month you might make thousands of dollars, but next month, you might not get anything, because of the oil price that has fallen. You need to talk to an oil and gas consulting company, before you’re investing, to make sure that you’re really making the right choice for you, personally.

Alternative fuel production

We all need to be aware of the fact that there’s a new type of fuel that’s in the making. This might not be available on the market yet, and there’s so much work left, before the new biofuels is able to be sold, there are the risk that this fuel may hit the market, and then the oil prices will fall, a lot.visit this great site at

oil and gas industry

This is something that so many people are hiding; and some oil and gas consulting firms are also hiding the fact that there might be some other way of making fuel. And, that oil may become less important and necessary.

We are sometimes trying not to think about the challenges that we can get from the oil and gas industry. So many people are just looking towards the rewards and the profit that they can make out of the oil and gas. But, it is important to make sure that you’re also aware of the fact that there’s many kinds of challenges that’s going hand in hand with the oil and gas industry. You can get all the different challenges from a great and trustworthy oil and gas consulting firm.