Chartered Professional Accountant (CPA) Core 1 Practice Exam

Accretion is the systematic increase of the obligation over time.

False It decreases the obligation over time It is irrelevant to liabilities True

Correct Answer:

True

Explanation:

Accretion is the unwinding of the discount on a present-value liability as time passes. When an asset retirement or decommissioning obligation is initially recorded, it’s measured at a present value. As each period passes, the liability increases by the amount of interest that accrues on its balance at the discount rate, even before any cash outlay occurs. This increase is recognized as accretion expense and raises the carrying amount of the liability on the balance sheet. The actual settlement happens in the future, when the obligation is paid, but the liability grows over time due to the passage of time and the discount unwinding. So the statement is true: accretion systematically increases the obligation over time.

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