Indeed, surveys have repeatedl… Multiplying the interest rate used in capitalizing the initial amount, by the beginning balance in the ARO. These calculations appear in the following table: Quantity. Even if you have an attorney and financial advisor advocating… Generally-accepted accounting standards (GAAP) require the company to include the present value of the expected (face value of) future decommissioning cost in the total acquisition cost of the asset. We may fantasize about international adventures or beachside escapes, but rarely do we lay the groundwork for realizing our retirement dreams financially. Assume Clayton estimates the mine will yield 10 million tones of coal. What are the two parts of an impairment test? The costs to assign to a fixed asset are its purchase cost and any costs incurred to bring the asset to the location and condition needed for it to operate in the manner intended by management. Such future costs include the cost of dismantling an asset, removal, site reclamation, nuclear decommissioning and closing mines. Part of the purchase agreement requires Clayton to restore the site to a condition suitable for recreational use at the end of its life, which is estimated to be in four years. The 2-Fund Portfolio In the model demonstrated here, asset allocation is brought to 60/40 five years before retirement. Assuming a company uses the double-declining balance method, complete each of the following sentences: 1) If the useful life is 6 years, the double-declining balance rate is: → 33.33%. What is the advantage of straight line method vs. DDB? What happens to the net book value of the asset? Depreciation is a contra-account that is subtracted from the cost of the asset to arrive at a book value. The Vanguard Target Retirement 2055 Fund offers lifecycle asset allocation for investors with specific retirement dates. The capitalized asset retirement cost is allocated in a systematic and rational manner as depreciation expense over the estimated useful life of the asset. List the components of asset retirement obligation (ARO) costs. The asset retirement cost increases the carrying amount of the fixed asset for which the ARO was created. Which principle does this method apply the best? Quarry Corp. has the following costs related to a mine it acquired this year. The organization can capitalize and then expense one-tenth of the asset-retirement costs each year.) measure fair value, then the probability-weighted estimates of future cash flows are discounted using a credit-adjusted risk-free rate. How is the book value of a depreciable asset calculated? Fixed assets—also known as tangible assets or property, plant, and equipment (PP&E)—is an accounting term for assets and property that cannot be easily converted into cash.The word fixed indicates that these assets will not be used up, consumed, or sold in the current accounting year. DDB assumes asset is used more in its earlier life than in its later life; AKA - accelerated method. When the FASB issued FIN 47, it clarified that the presence of some uncertainty about the timing of an asset-retirement is not an exemption from having to apply FAS 143. The exact impairment analysis will depend on what? Figure 2: Projection of Sam’s retirement assets using Strategic Asset Allocation and market history 0 200,000 400,000 600,000 800,000 1,000,000 0 5 10 15 20 25 30 Years from now Portfolio Value 0 200,000 400,000 600,000 800,000 1,000,000 0 5 10 15 20 … If you prefer a different asset allocation model, you could find a target-date retirement fund that matches your model of choice, regardless of the year you plan to retire. liability as a probable future economic sacrifice arising from present obligations. Which of the costs below are subject to depreciation over time? Costs to Consider. Learn vocabulary, terms, and more with flashcards, games, and other study tools. What does the double declining balance method assume? A quick note about future expected returns: I demonstrate two different returns. KEY POINTS Even if two assets appear to have the same value, taxes can make one worth less than the other at the time of valuation. A plant asset is considered to be impaired when: f. An estimate of its total undiscounted future cash flows are less than the asset's book value. Fundamentals of Asset Management 5 Concepts of cost particularly useful to AM Current replacement cost - The full cost to replace an asset in its current operating environment Life cycle cost - The total cost of an item throughout its life, including the costs of planning, design, acquisition, operations, maintenance, and An asset retirement obligation (ARO) is a liability associated with the eventual retirement of a fixed asset.The liability is commonly a legal requirement to return a site to its previous condition. Even the most thoughtful investor may overlook certain costs that will affect their retirement strategy and overall income needs. Learn vocabulary, terms, and other study tools regarding the future obligation: job kids... 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