ARO accounting is an extra-cost option in EZLease.
If you are required to remove assets related to a lease at the lease’s end (to restore the leased asset to its original condition), or anticipate other costs related to the retirement from service of an asset, an asset retirement obligation (ARO) is set up at the present value of the assumed future cost, and the ARO is accreted (increased by adding interest to the obligation) for the life of the lease. Simultaneously, the Asset Retirement Cost (the asset matching the initial obligation) is depreciated over the lease’s life. ARO accounting under US GAAP is specified in FAS 143, now labeled Topic 410 in the Accounting Standards Codification (ASC). ARO accounting for IFRS users is specified in IAS 37, where the obligations are called “provisions.”
ARO information is entered on the ARO tab of EZLease. A lease record is required to enter an ARO. However, if you have an ARO that is not actually connected to a lease (that is, an ARO connected to an owned asset), you may set up a lease record with classification type ARO Only, with begin and end dates appropriate for the AROs on that property, and leave the rent information blank.
An ARO may have multiple layers, which increase or reduce the overall value and may start and end on different dates but are combined for reporting purposes. Each layer may have revisions, reflecting a change in the end date, inflation rate, or risk-free rate. Each ARO may also have payments made during its life, which reduce the remaining ARO liability.
The ARO tab displays on the left a tree of all AROs, with the associated layers, revisions, and payments attached. On the right, at top is shown information for the overall ARO. Underneath shows a summary of AROs for a particular lease in the first data table. Below that table, EZLease displays one ARO at a time with a full display of its input information. Underneath comes the layer and its revisions (if any). An individual layer may have its end date or rates revised; if so, each revision is entered listed separately in the table at the lower left, with the recalculated future and present values of the ARO. At the top of the tab, the Total ARO is shown. This includes all AROs for the leasethat have not been early terminated, no matter when their normal end date is.
To make changes to the ARO information, either use the menu items on the ARO menu, or right-click on the ARO tree box at the left side of the ARO tab.
For ARO Layer
Display End Notice
For ARO Revision
ARO Inflation Rate
ARO Risk-Free Rate
See also the ARO tab of System Options, which has the following fields:
Start calculating ARO expense
Economic penalty test
Accretion rates table
Recalculate accretion when rate changes (IFRS)