Asset retirement cost definition
/What is Asset Retirement Cost?
An asset retirement cost is any expenditure that is expected to be incurred when an entity takes a long-term asset out of service. This cost is usually associated with the retirement of major assets, such as a nuclear reactor or a coal mine. Examples of these costs are as follows:
Asset removal. This involves taking down an asset and removing the components from the premises.
Site cleanup. This may involve soil sampling to determine the extent of any pollution, as well as treating the soil.
Restoration. The entity may be required to restore the location to how it looked beforehand. For example, it may be necessary to add a layer of topsoil to a mine site.
A business may be required to recognize these cost estimates as a liability, which is known as an asset retirement obligation. The offset to this liability is recorded as an asset, and is depreciated over the remaining life of the underlying asset.