Anyone familiar accounting for Asset Retirement Obligations? Why, when adjusting the balance sheet to consider ARO as debt (for ratio calc purposes) do you convert ARO to LT Debt net of tax benefits? The ARO is not an interest payment / hence tax deductable....
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Someone plz answer my question.
Because you have to calculate an accretion expense for the ARO each period (PV of ARO x Interest Rate). Essentially it's like amortizing the discount on any debt. This expense (which is essentially an interest expense) is deductible.
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