Business Glossary

FASB Statement No. 143 requires companies to record a liability at fair market value when a retirement obligation exists, provided fair value can be reasonably estimated even though it is years prior to the asset's planned retirement. The associated asset retirement cost is also recorded for the same amount when the initial obligation arises. After the initial recognition, the liability will change over time, so the obligation may be accrued to its present value each year. The long-term asset's capitalized cost is depreciated over its useful life.