Scenario 1
The ARO is initially set up as in Scenario 1 from "Example scenarios for setting up an ARO." Effective May 1, 2015, management concludes that the first option period needs to be recognized. To do this, unlock the lease, check the Recognize box on the first renewal option, and click Save Lease. Choose Revision for the change type, and set the Revision Booking Date to May 1, 2015. Click OK, and EZLease reports that the ARO has been extended along with the lease life. The new Net ARO is 5,587.02.
Scenario 2
The ARO is initially set up as in Scenario 1 from "Example scenarios for setting up an ARO." After 15 years, it is determined that the actual cost to remove the tank requires adding 10,000 in current dollars. Click on the ARO, then choose Add layer to enter a new layer on the existing ARO, with a current start date of July 15, 2028 and the same January 31, 2033 end date as originally. Use current inflation and risk-free rates. (If the estimated cost should be reduced, you would use the original 6.5% risk-free rate.)
Scenario 3
Same as in Scenario 2 from "Example scenarios for setting up an ARO." except the determination is that the current actual cost is 25,000; the current inflation-adjusted value is 21,097.25 (this is calculated automatically). Choose Revise ARO Estimate and enter 25,000 for the Revised Cost. EZLease calculates 3,902.75 as the net change; fill in the new inflation rate (if that changes) and the current risk-free rate, then click Process to create the new layer.
Scenario 4
The ARO is initially set up as in Scenario 3 (owned asset) from "Example scenarios for setting up an ARO." On May 1, 2015, the expected settlement date is changed to July 14, 2048 (5 years earlier). Change the ARO Booking date to May 1, 2015, and the End Date to July 14, 2048; click Save ARO Item and choose Revise. A revision is created. The new Net ARO is 3,668.62.
Related Links
ARO Roll Forward | ARO Data Entry | Setting up an ARO | Revising an ARO | ARO Inflation Rate