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When an asset retirement obligation is recorded as a liability, the offsetting journal entry is a debit to balance the credit side of the asset retirement liability entry.
Businesses must capitalise the asset retirement costs as an increase in the carrying amount of the linked long-term asset in order to balance the credit side of the asset retirement liability entry.
Asset Retirement Obligation is a requisite in terms of law and accounting. When a firm is finished using a tangible long-lived asset, the corporation must establish plans to retire the asset and restore it to its original state. The
Financial Accounting Standards Board (FASB) in the United States and the International Financial Reporting Standards in the rest of the world provide standards for the recognition and accounting of asset retirement obligations. These organisations offer comprehensive recommendations on how to handle asset retirement obligations.
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