Scenario 1
The ARO is initially set up as in scenario 1 from "Example scenarios for setting up an ARO." The lease and ARO expire normally on January 31, 2033. On the ARO, enter a Term Type of Normal, and a Term Date of January 31, 2033. The journal entries or other reports show a debit to ARC accumulated depreciation and credit to ARC of 6,832.04, debit to ARO liability and credit to ARO expense allowance of 23,394.70. (The last is applied against your actual expenses.)
Scenario 2
The ARO is initially set up as in scenario 1 from "Example scenarios for setting up an ARO." At expiration, the lease is extended temporarily on a month-to-month basis. On the Term/Options tab, check the Month To Month At Termination box, and set a date into the future for End of MTM (perhaps one year later, January 31, 2034). If you have checked the System Option, “Continue to accrete ARO after scheduled end date using inflation rate,” reports run while the lease is in MTM status accrete the liability according to the inflation rate, so the journal entry for February 2033 is a debit to ARO accretion expense and a credit to ARO liability of 44.67 each. (If the option is unchecked, no activity is reported for the ARO.) If you actually end the lease on July 31, 2033, change the End of MTM date to that date, and set the ARO Term Type to Normal, Term Date to July 31, 2033. The final journal entries are a debit to ARC accumulated depreciation and credit to ARC of 6,832.04 (which does not change during the MTM period), and a debit to ARO liability and credit to ARO expense allowance of 23,662.21 (assuming extended inflation-based accretion).
Scenario 3
The ARO is initially set up as in scenario 3 from "Example scenarios for setting up an ARO." The tank is not immediately replaced at the expected date of July 14, 2053. Until a termination is entered, the ARO liability continues to accrete (if the System Option for inflation-based accretion is checked). When you do remove the tank, change the Term Type to Normal and set the appropriate Term Date.
Scenario 4
The ARO is initially set up as scenario 3 from "Example scenarios for setting up an ARO." The station is sold on December 15, 2025, with the new owner taking over responsibility for replacing the tank. On the ARO tab, change the Term Type to Early; change the Term Date to December 15, 2025. Click Save ARO, then Save Lease. The ARO Roll Forward report, Journal Entries report, or the spreadsheet form of the Income Statement/ Balance Sheet Detail report shows the termination effect: debit ARC accumulated depreciation for 4,341.39, debit ARO liability for 14,935.33, credit ARC for 6,832.04, and credit 12,444.68 for termination gain.
Scenario 5
The ARO is initially set up as in scenario 1 from "Example scenarios for setting up an ARO." At expiration of the lease, a new lease agreement is signed for the property, lasting another 10 years, and the ARO is transferred to the new lease. First set up the new lease. On the old lease’s ARO, set the Early Term Type to Transfer, date of January 31, 2033.
EZLease asks if it should set up the transfer addition on the new lease; choose Yes and select the new lease to receive the transfer. Save the old lease. Switch to the new lease and change the ARO end date to January 31, 2043. Save the ARO and choose Revision rather than Replace. The Net ARO shown is 393.43, which represents the original Net ARO of 6,832.04 less a reduction in present value of 6,438.61 when the end date is extended. Since the ARC is completely depreciated, a gain is recognized of 6,438.61 to balance the reduction in liability.
Related Links
ARO Roll Forward | ARO Data Entry | Setting up an ARO | Revising an ARO | ARO Inflation Rate