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sabina

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tT
发表于 2011-7-11 19:48 | 只看该作者

ARO related expense

related, interest, expected, effective, liability
A company expects to use a landfill site for 10 years at the end of which it will have to cap and close the landfill at an expected cost of $2.8 million. Given that the effective interest rate is 8%, the company's total ARO related expenses in Year 2 are closest to:

A. $250,714
B. $121,020
C. $224,776

Answer: A.

Present value of liability= $1,296,941
Depreciation= $1,296,941/10 = $129,694
Carrying value of liability in Year 2= $1,400,697
Accretion Expense in Year 2= $112,055

Can someone explain why they used $121,020 instead of $112,055?



Edited 1 time(s). Last edit at Wednesday, November 24, 2010 at 06:55PM by notic4lyf.
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soddy1979

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2#
发表于 2011-7-11 19:48 | 只看该作者
This is definitely an error. Accretion expense for year 2 is coming $112,055 and total ARO related expenses are coming $241,750.

They have taken accretion expense for year 3 which is $121,020 in their calculation which would be wrong.

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Bulla564

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3#
发表于 2011-7-11 19:48 | 只看该作者
I dont know but when they say, the answer is closest to.... maybe they are giving a margin of error..... dunno

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JPSem

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4#
发表于 2011-7-11 19:48 | 只看该作者
SpyAli Wrote:
-------------------------------------------------------
> This is definitely an error. Accretion expense for
> year 2 is coming $112,055 and total ARO related
> expenses are coming $241,750.
>
> They have taken accretion expense for year 3 which
> is $121,020 in their calculation which would be
> wrong.

Thanks Ali that's what I figured. I guessed A only because the "correct" answer wasn't an option.

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jim8z3

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5#
发表于 2011-7-11 19:48 | 只看该作者
Where is this question from?

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pogo

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6#
发表于 2011-7-11 19:48 | 只看该作者
ARO calculations are not tested in the exam

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LokiDog2

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7#
发表于 2011-7-11 19:48 | 只看该作者
not tested?

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leadcfa

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8#
发表于 2011-7-11 19:48 | 只看该作者
yes. we are not required to do ARO calculations on exam (LOS 37g), but we need to know the accounting for AROs and its impact on financial statements.

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