NetLease - Asset Retirement Obligations (AROs) in NetLease
It is possible to set up Asset Retirement Obligations (AROs) inside NetLease. An ARO is an obligation or liability associated with the retirement of a long-life asset. It often deals with restoring land back to full functionality or cleaning up hazardous material or removing equipment.
Configuring an ARO NetLease Lease Type
An ARO needs to be set up as a financing lease under a new ARO lease type. In the type you would add your ARO specific accounts mapped to the applicable NetLease Accounts:
- ROU Asset – Asset Retirement Cost Asset
- Long Term Liability – Asset Retirement Obligation Liability
- ROU Asset Acc Amor – Accumulated Asset Retirement Cost
- ROU Amor Ex – ARC Depreciation Expense
- Interest Ex – ARO Accretion Expense
Entering an ARO in NetLease
When creating a Lease, select the ARO Type and make sure the Lease Classification is “Financing”. Enter the Commencement Date, End Date, Lease Term, and Discount Rate as normal. Enter the final anticipated cost as a final payment on the lease schedule. Make sure there are no other payments entered. Generate the Schedule.
ARO NetLease Journals
At this point the ARO is set up and ready to be capitalized. Here is what the Journal Entries will look like throughout the life of the ARO.
Capitalization Entry
Monthly Accretion and Depreciation Entries
Final Amortization Entry and Close Out Entry