A finished ACC-685 Topic 2 retirement obligation sensitivity schedule example, weighting three restoration scenarios, discounting at a credit-adjusted rate to $1.30 million and showing the range each assumption produces. Searches like "acc 685 topic 2 assignment example", "acc685 topic 2 sample" and "acc-685 topic 2 example" land here.
What a finished ACC-685 Topic 2 retirement obligation sensitivity schedule looks like
The finished schedule builds the obligation in four steps, every figure illustrative. Three restoration scenarios in current prices come first: panel removal only at $2.4 million, removal with regrading at $3.4 million and full soil restoration at $5.0 million, weighted 50, 30 and 20 percent for an expected $3.22 million. Inflation of 2.5 percent a year over 25 years and a 5 percent market risk premium lift that to $6.27 million at lease end. Discounting at the company's 6.5 percent credit-adjusted risk-free rate gives $1.30 million, recognized as a liability and added to the solar array's carrying amount. First-year accretion is $84,400. A sensitivity table closes the schedule: one point either way on the discount rate moves the liability between $1.03 million and $1.64 million.
How an ACC-685 Topic 2 example is structured
From the lease clause to the sensitivity table, the schedule takes one assumption per block. It opens with the obligation's source, the landowner lease requiring removal and restoration, since a legal obligation is what ASC 410-20 recognizes. The scenario block follows, each restoration outcome with its cost basis, an engineering quote or a contractor's estimate, and the reason for its weight. An inflation block states the 2.5 percent rate and its support. The risk premium block explains why a market participant would demand compensation for bearing the uncertainty. Discounting comes next, with the credit-adjusted rate built from a Treasury yield and the producer's credit spread. An entries block records the liability, the asset retirement cost, first-year accretion and depreciation. The final block varies each input alone, and a note explains that later upward revisions will be measured at the rate current when they arise.
A legal obligation found in the lease
The landowner's lease requires panel removal and soil restoration at its end, which is the legal obligation that makes the estimate a liability rather than a plan.
Three scenarios weighted, not one chosen
Using only the most likely outcome, removal at $2.4 million, would put the liability near $0.97 million and ignore the costlier restorations the landowner may demand.
Inflation and a premium for uncertainty
A 2.5 percent inflation rate and a 5 percent market risk premium carry the expected $3.22 million to $6.27 million in lease-end dollars.
A discount rate carrying the producer's credit
The 6.5 percent rate combines a Treasury yield with the producer's credit spread, because the guidance discounts at a credit-adjusted risk-free rate rather than the rate on any loan.
Accretion and depreciation shown together
First-year accretion of $84,400 and depreciation of about $51,900 on the capitalized cost together show what the obligation charges to income each year.
Each input moved on its own
The table varies the rate, the inflation assumption and the scenario weights one at a time, so a reader sees which assumption carries most of the uncertainty.
Where marks go in ACC-685 Topic 2
Schedules that report $1.30 million and stop lose the most, because the figure is only as good as three assumptions nobody has been shown. Measuring from the most likely scenario alone understates the obligation by about a third of a million dollars on these facts, and many sections score that as a mismeasurement, not a shortcut. Discounting at the rate on one of the producer's loans, or at a risk-free rate with no credit adjustment, uses a rate the guidance does not. Papers that forget to add the asset retirement cost to the array record an expense where the standard records an asset. Leaving accretion out of first-year income misstates operating results. Sensitivity shown for the discount rate alone hides that the scenario weights move the answer by a similar amount.
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ACC-685 Topic 2 questions, answered
Why is the obligation measured with expected cash flows?
Because fair value reflects the range of outcomes a market participant would consider, not just the single likeliest one. When no market exists for settling the obligation, ASC 410-20 generally relies on an expected present value technique, weighting possible cash flows by probability. Where outcomes are skewed toward a costly tail, as full restoration is here, the expected amount sits above the most likely one.
What happens when the estimate changes later?
Revisions change the liability and the asset retirement cost together. An upward revision is treated as a new layer, measured at the credit-adjusted risk-free rate current when it arises, while a downward revision is applied at the rates of the existing layers. The schedule records the original layer's rate so that a later engineering estimate can be processed correctly and a reviewer can follow it.
Is accretion interest expense?
No. Accretion increases the liability each period toward its settlement amount, and the guidance classifies it as an operating item in the income statement rather than as interest cost. Depreciation of the capitalized asset retirement cost runs separately over the asset's useful life. The schedule shows both lines because readers see them in different places and should know they come from one estimate.