In Japan, except for in a few cases such as reserve for decommissioning costs of nuclear power units of an electric power company (e.g., Tokyo Electric Power Company, 1989, p.35), the accounting treatment that recognizes an
asset retirement obligation as a liability and includes the asset retirement cost corresponding to it in the cost of a tangible fixed asset, as required by the global accounting standards, has not been adopted (ASBJ, 2008a, par.22).
The result was SFAS 143, Accounting for
Asset Retirement Obligations, issued in June 2001.
But FASB's exposure draft on conditional
asset retirement obligations calls for the company to estimate and record a fair value liability.
FASB decided that, at transition, an entity should measure the fair value of a liability for an
asset retirement obligation and the corresponding capitalized cost at the date the liability was initially incurred using current information, assumptions and interest rates.
Specifically, the measurement of a liability for an
asset retirement obligation should equal what a willing third party would require currently to assume the company's liability.
The company expects the purchase price to be financed with a combination of cash, of about USD74m, plus the assumption of about USD118.0m in certain liabilities and post retirement medical, pension, black lung and
asset retirement obligation liabilities.
Accretion of discount on
asset retirement obligations is expected to be $3 million to $6 million.
Additionally, Cliffs' disclosed the costs of closing the Australian operations were reduced by approximately USD85m,which included the
asset retirement obligations assumed by MRL.
Fitch's enterprise value multiple assumption is 4.5x given how much of the industry is distressed and the need for asset valuations to incorporate
asset retirement obligations. Fitch notes that its going-concern EBITDA together with its multiple assumption result in an enterprise value that is close to a liquidation value.