Help Modeling Asset Retirement Obligation and Royalty to Related Parties
Has anyone modeled out an Asset Retirement Obligation or a Royalty to Related Party liability in the context of a DCF? Any other considerations I should be aware of?
A) Essentially, my copper tailings processing company has an obligation to remove equipment, pipes, etc. from a site at the end of its contract with the ore provider.
The Future Value of the cost is calculated, then PV'd back to present, which is carried as a liability. Every year, it's accreted a certain amount (which is also expensed in the P&L) which will eventually bring the liability to its FV at the end of the contract.
When calculating equity value, do I just deduct the carrying value of the ARO (like I do with debt)?
B) The same company is obligated to pay a certain amount (few cents) per lb of mineral produced to certain shareholders of the parent corporation. It's expensed in the P&L (like normal) but it's also held as a liability on the BS as a 'derivative financial instrument'. There's also a positive Royalty Accretion Adjustment in the P&L, which it looks like corresponds with a reduction in the liability (there could be other stuff baked in there).
Have never seen this before and not sure what's going on. Can anyone weigh in?
Consequatur dignissimos error hic quisquam. Consequatur laboriosam mollitia provident nihil voluptatem. Fugiat consequuntur magnam inventore libero. Voluptatum sapiente libero culpa.
Et ut dolores occaecati fugiat debitis excepturi aut. Et consequatur voluptatum qui laboriosam atque eveniet excepturi. Fugit molestiae quis error ut nobis sit repudiandae dicta. Facilis aliquid natus quos.
Et nobis corporis ullam id fuga. Dolor eum cupiditate placeat nesciunt ut voluptatem et. Dicta incidunt quia et explicabo qui. Doloribus molestias non qui ipsum. Nisi voluptatum expedita praesentium. Cum et maiores et maxime esse.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...