1- Ten warehouses that will likely be sold before being required to remove the asbestos:
FAS 143 rejected the “probable and reasonably estimable” approach of FAS 5 in favor of fair value measurements (FVM) when calculating AROs. Under FAS 143,AROs must be recognized when the liability is incurred which is generally when the long-lived asset is acquired, constructed, developed or through normal operation provided the company can make a reasonable estimate of the “ fair value” of the liability. There are five levels of hierarchy for calculating fair value. An entity must begin at the highest level and may work its way down if sufficient information is unavailable. The highest and preferred FVM is quote prices from active markets with the lowest being assumptions developed by the entity

410-20-25-4 An entity shall recognize the fair value of a liability for an asset retirement obligation in the period in which it is incurred if a reasonable estimate of fair value can be made. If a reasonable estimate of fair value cannot be made in the period the asset retirement obligation is incurred, the liability shall be recognized when a reasonable estimate of fair value can be made. If a tangible long-lived asset with an existing asset retirement obligation is acquired, a liability for that obligation shall be recognized at the asset’s acquisition date as if that obligation were incurred on that date.
410-20-25-6 An entity shall identify all its asset retirement obligations. An entity has sufficient information to reasonably estimate the fair value of an asset retirement obligation if any of the following conditions exist: It is evident that the fair value of the obligation is embodied in the acquisition price of the asset. b. An active market exists for the transfer of the obligation. c. Sufficient information exists to apply an expected present value technique.

410-20-15 Scope and Scope Exceptions- 3 the guidance in this Subtopic does not apply to the following transactions and activities: a. Obligations that arise solely from a plan to sell or otherwise dispose of a long-lived asset covered by Subtopic (360-10.) “LOI has plans to sell within the next five years and does not have plans to demolish or otherwise significantly renovate such warehouses prior to their disposal. Because LOI will never effectively have to settle the obligation to remove the asbestos from the building(s), it does not have an asset retirement obligation that needs to be recognized”
According to our case, LOI will sell in the next five years and does not have to plan to demolish. Therefore, according to 410-20-15-3, “obligation that arises solely from a plan to sell”. There is a scope and the scope is the exception for the sale. LOI doesn’t have to record the fair value of the asset retirement obligation related to these 10 warehouses.
However, 410-20-25-15 stated that LOI should recognize a liability based on the 5 year useful life because they are planning on selling the 10 warehouses within the next 5 years. In addition, 10 of the 23 warehouses containing asbestos reside in states with special asbestos handling and removal laws. When the sale takes place, there is a chance that the buyer would require to remove the asbestos. According to ASC 410-20-25-15, “an unambiguous requirement that gives rise to an asset retirement obligation coupled with a low likelihood of required performance still requires recognition of a liability.” ASC 410-20-25-10 explains that “instances may occur in which insufficient information to estimate the fair value of an asset retirement obligation is available. For example, if an asset has an indeterminate useful life, sufficient information to estimate a range of potential settlement dates for the obligation might not be available. In such cases, the liability would be initially recognized in the period in which sufficient information exists to estimate a range of potential settlement dates that is needed to employ a present value technique to estimate fair value.”
When the sale occurs, LOI will have the exact date of the sale, and LOI will estimate the useful life of changes that the company can make to the adjustment of the estimate. As a result, LOI would recognize the asset retirement obligation based on 5 years of useful life.

2. Two warehouses in states without special asbestos handling and disposal laws?

410-20-25-16, “if a tangible long-lived asset with an existing asset retirement obligation is acquired, a liability for that obligation shall be recognized at the asset’s acquisition date as if that obligation were incurred on that date.’

ASC 410-20-55-5 clearly explains that contracts between entities may contain an option or a provision that requires one party to the contract to perform retirement activities when an asset is retired. The other party may decide in the future not to exercise the option or to waive the provision to perform retirement activities, or that party may have a history of waiving similar provisions in other contracts. Even if there is an expectation of a waiver or non-enforcement, the contract still imposes a legal obligation. That obligation is included in the scope of this Subtopic. The likelihood of a waiver or non-enforcement will affect the measurement of the liability.”

An entity should recognize the fair value of a liability for an ARO in the period in which it is incurred if a reasonable estimate of fair value can be made. If a reasonable estimate of fair value cannot be made in the period the ARO is incurred, a circumstance which we believe would occur infrequently, then no liability should be recognized in that period, but disclosure of the existence of the ARO is required. The recognition of the ARO should be delayed until the period in which a reasonable estimate of fair value can be made (ASC 410-20-25-4).
As result of ACS 410-20-55-5, LOI can record the 10% of the asset retirement liability based on their 90% estimate. Or according to ASC 410-20-25-4, it says that they should be delayed until the period in which a reasonable estimate of fair value can be made. Lease Obligations a) SFAS No. 143 applies to companies that incur retirement obligations including companies that lease assets to others. There may be costs associated with a lease that should be recorded as an asset retirement obligation. b) An obligation to remove leasehold improvements at the end of the lease may be an ARO under the Standard if the landlord can contractually require the lessee to remove the leasehold improvements at the end of the lease. The timing of the recognition of the ARO is when the obligating event occurs (i.e., when the improvements are made that may later be required to be removed).
Also, there is a sales contract and LOI believes that there is a 90% probability that the third party will not enforce the provision in the current purchase/sales contract requiring LOI to remove the asbestos. Because it is not probable that LOI will be required to remove the asbestos, no asset retirement obligation needs to be recognized. At worst, there is not sufficient information. Therefore, they should record costs associated with a sales contract as an asset retirement obligation.
.3- Thirteen warehouses for which the settlement date is indeterminate:

410-20-55-14, “It is expected that uncertainties about the amount and timing of future cash flows can be accommodated by using the expected present value technique and therefore will not prevent the determination of a reasonable estimate of fair value."
A ―conditional asset retirement obligation refers to a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the entity. However, the obligation to perform the asset retirement activity is unconditional even though uncertainty exists about the timing and/or method of settlement. Accordingly, recognition of the liability for the fair value of a conditional asset retirement obligation is required if the fair value of the liability can be reasonably estimated. The uncertainty about the timing and/or method of settlement of a conditional asset retirement obligation should be factored into the measurement of the liability when sufficient information exists.
An entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation if either of the following conditions exists:
► the settlement date and method of settlement for the obligation have been specified by others. In this case, the only uncertainty is whether the obligation will be enforced. Uncertainty about whether performance will be required does not defer the recognition of an asset retirement obligation because a legal obligation to stand ready to perform the retirement activities still exists.
► Information is available to reasonably estimate (1) the settlement date or the range of potential settlement dates, (2) the method of settlement or potential methods of settlement and (3) the probabilities associated with both (1) and (2). This information may be derived from various sources including the entity’s past practice, industry practice, management’s intent or the asset’s estimated economic life.

Uncertainty about the timing of the settlement date does not change the fact that an entity has a legal obligation. However, measurement of that obligation might not be possible if insufficient information exists about the timing of settlement. The example in ASC 410-20-55-57 through 55-58 discusses the accounting for an entity that is obligated to handle and dispose of asbestos in a special manner if a factory undergoes major renovations or is demolished. The entity has several options to retire the factory in the future including demolishing, selling or abandoning it. The entity believes that there is an indeterminate settlement date for the ARO because the range of time over which the entity may settle the obligation is unknown or cannot be estimated. Therefore, the entity cannot reasonably estimate the fair value of the liability at that time. The entity should measure and recognize the fair value of the obligation when information is available to develop various assumptions about the potential timing of cash flows. However, the fact that the fair value of the liability could not be reasonably estimated and the reason therefore should be disclosed.
410-20-25-10, “Instances may occur in which insufficient information to estimate the fair value of an asset retirement obligation is available. For example, if an asset has an indeterminate useful life, sufficient information to estimate a range of potential settlement dates for the obligation might not be available. In such cases, the liability would be initially recognized in the period in which sufficient information exists to estimate a range of potential settlement dates that is needed to employ a present value technique to estimate fair value.”
There is no legal requirement to remove the poles from the ground although the owner may replace the poles periodically for operational reasons. However, there is existing legislation that requires special disposal procedures for the poles in the state in which the entity operates. At the date of purchase of the treated poles, the entity has the information to estimate a range of potential settlement dates, the potential methods of settlement and the probabilities associated with the potential settlement dates and methods, based on established industry practice. Therefore, at the date of purchase, the entity is able to estimate the fair value of the liability for the required disposal procedures using an expected present value technique. Because the legal requirement relates only to the disposal of the treated poles, the ARO would include the costs of disposal, but not the costs to remove the poles.
An entity should recognize the fair value of a liability for an ARO in the period in which it is incurred if a reasonable estimate of fair value can be made. If a reasonable estimate of fair value cannot be made in the period the ARO is incurred, a circumstance which we believe would occur infrequently, then no liability should be recognized in that period, but disclosure of the existence of the ARO is required. The recognition of the ARO should be delayed until the period in which a reasonable estimate of fair value can be made (ASC 410-20-25-4). ASC 410-20-25-15 clearly explains and ASC 410-20-25-10 stated that “uncertainty about the conditional outcome of the obligation is incorporated into the measurement of the fair value of that liability, not the recognition decision.” LOI did not determine the estimated useful life of its warehouses. This is not an excuse that LOI should not record its liabilities. ASC 410-20-25-10 explains that “in such cases, the liability would be initially recognized in the period in which sufficient information exists to estimate a range of potential settlement dates that is needed to employ a present value technique to estimate fair value.”
Also, ASC 410-20-25-4 says that ARO should be delayed until a period in which a reasonable estimated fair value can be made. Therefore, LOI can delay until the period in which a reasonable estimate of fair value can be made for its warehouses.