Correction
Accretion measures the passage-of-time increase in the discounted liability. Depreciation or depletion allocates the related asset retirement cost as the asset provides service. The initial balances can be equal, but their later measurement bases and movements differ.
ASC 410-20-35-5 uses an interest method for the passage-of-time liability change. Paragraph 35-2 requires systematic and rational allocation of the related asset cost.
How to avoid the mistake
Maintain separate liability and asset schedules. Reconcile accretion, new obligations, revisions, and settlements in the liability rollforward. Reconcile depreciation or depletion, impairment, and disposal in the asset records.
Where to watch
When this mistake may appear
- Initial ARO recognition creates equal asset and liability amounts.
- Both later schedules create expense during the asset's life.
Check your work
Your work may contain this mistake if:
- Reduces the liability when recording depreciation or depletion.
- Increases the asset when recording accretion.
- Nets both expenses into one unexplained rollforward row.