ations associated with the retirement of a tangible long-lived asset. As such, if a company does not have a legal obligation to incur costs to retire an asset, the staff believes it is outside of the scope of SFAS 143. No costs should be recorded until a legal obligation arises or costs are actually incurred. In such situations, upon adoption of SFAS 143, any previously recorded accruals should be reversed. Cheri Mazza notes in CPA Journal that the scope of SFAS 143 does include legal obligations resulting from "the acquisition, construction, or development and (or) the normal operation of a long-lived asset" (paragraph 2). Legal obligations result from law, statute, ordinance, or contract, or arise from promissory estoppel. A contractual obligation normally requires an exchange of consideration. For obligations arising from promissory estoppel, a party cannot use the absence of consideration as a defense; that is, a valid contract may exist without the exchange of consideration if one party relied on a promise made by another and was harmed because of that reliance (54). Thus, SFAS 143 applies to legal and other obligations for which the entity has little or no ability to avoid future costs in performing retirement activities.
When the liability is initially recorded, the entity capitalizes a cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, an entity either settles the obligation for its recorded amount or incurs a gain or loss upon settlement. Under the requirements of FAS 143, an entity must estimate and record the present value of future legal obligations related to the final closure or decommissioning of its plants and facilities.ß Eugene Chewning writes in CPA Journal that entities will be required to record the asse...