标题: ARO related expense [打印本页] 作者: sabina 时间: 2011-7-11 19:48 标题: ARO related expense
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.作者: soddy1979 时间: 2011-7-11 19:48
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.作者: Bulla564 时间: 2011-7-11 19:48
I dont know but when they say, the answer is closest to.... maybe they are giving a margin of error..... dunno作者: JPSem 时间: 2011-7-11 19:48
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.作者: jim8z3 时间: 2011-7-11 19:48
Where is this question from?作者: pogo 时间: 2011-7-11 19:48
ARO calculations are not tested in the exam作者: LokiDog2 时间: 2011-7-11 19:48
not tested?作者: leadcfa 时间: 2011-7-11 19:48
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.
