Cost Estimation Plan 
One of the main elements for the valuation of an asset retirement obligation (ARO) is the cost estimation plan (CEP), which can consist of one or multiple cost estimation items.
The retirement of an underlying object is usually done at the end of a leasing contract and therefore, in most cases, there is only one settlement date and the cost estimation plan consists of only one cost estimation item.
However, there can also be underlying objects, which represent large physical objects (for example, nuclear plants), that cannot be retired on one specific date. Instead, the retirement can last for many years and is done step by step. In this case, the CEP consists of the relevant number of settlement dates and the corresponding multiple cost estimation items.
SAP Asset Retirement Obligation Management provides the following features for processing CEPs:
Initial Cost Estimation
When you create an ARO for an underlying asset, the transaction you always need to create first is an initial cost estimation. The system asks you to enter the initial CEP.
Cost Estimation Adjustment
You can amend the cost estimation if new information about settlement costs becomes available. You can update the CEP by using the following:
Changing/adjusting the cost estimations of selected, or all, settlement dates
Entering new settlement dates in new cost estimation items
Deleting existing cost estimation items
Adjusting all settlement dates by a fixed period (adjusting the term of an ARO)
Partial Termination (if relevant to your business processes)
If one of the settlement dates is reached and you decided to retire the corresponding part of the underlying object, you need to process the true costs of the partial retirement. Using the partial termination function allows you to enter these costs. In addition, you have to update the CEP and you have to adjust at least the cost estimation item that is being partially retired.
Structure
For each cost estimation, you must enter the following parameters:
Parameter |
Explanation |
|---|---|
Settlement Date |
Expected date of settlement; (Expected retirement date on which you expect to have to settle the retirement costs) |
Cost Type |
Identifies the cost component(s) that makes up a cost estimation; (Only available if enabled in Customizing; You are able to specify separate parts of the cost estimation via cost types). |
Pricing Key Date |
Date on which the cost estimation is based. This might be the ARO transaction date or another date, the latter being true in the case of the reuse of a previous cost estimation for a similar ARO. |
Transaction Date |
The transaction date is automatically set to the ARO setup date |
Cost Estimation on Key Price Date |
Amount of cost estimation; (Based on the pricing key date) |
Note
You define cost types in Customizing for SAP Asset Retirement Obligation Management under 
Financial Obligations 
Cost Estimation Plans (CEP) Define Cost Types 
.
Even if cost types are enabled in Customizing, the ARO valuation is done on the total of the (inflated) costs per settlement date and not on the (inflated) costs per settlement date and cost type. In Customizing, you are also able to define if the costs of a specific cost type need to be considered for all accounting principles or if a cost type is only relevant for specific accounting principles.
Example
Example 1 (without the use of cost types)
CE Item No. |
Settlement Date |
Pricing Key Date |
CE Amount at Pricing Key Date |
|---|---|---|---|
1 |
31.12.2012 |
01.01.2010 |
$30.000 |
2 |
31.12.2013 |
01.01.2010 |
$37.000 |
Example 2 (with the use of cost types)
CE Item No. |
Settlement Date |
Cost Type |
Pricing Key Date |
CE Amount at Pricing Key Date |
|---|---|---|---|---|
1 |
31.12.2012 |
Machines |
01.01.2010 |
$20.000 |
Salary |
01.01.2010 |
$12.000 |
||
2 |
31.12.2013 |
Machines |
01.01.2010 |
$25.000 |
Salary |
01.01.2010 |
$12.000 |
For accounting principles for which cost types Machines and Salary are relevant, the CEP that is used for an ARO valuation is as follows:
CE Item No. |
Settlement Date |
Pricing Key Date |
CE Amount at Pricing Key Date |
|---|---|---|---|
1 |
31.12.2012 |
01.01.2010 |
$30.000 |
2 |
31.12.2013 |
01.01.2010 |
$37.000 |
If there is a Customizing setting that cost type Salary is not relevant for IFRS, then the IFRS CEP that is used for the ARO valuation is as follows:
CE Item No. |
Settlement Date |
Pricing Key Date |
CE Amount at Pricing Key Date |
|---|---|---|---|
1 |
31.12.2012 |
01.01.2010 |
$20.000 |
2 |
31.12.2013 |
01.01.2010 |
$25.000 |
Note
When you enter or adjust a CEP, the system usually offers you a function that allows you to check the accounting principle related view of the CEP.
More Information
For more information, see Initial Cost Estimation and Cost Estimation Adjustment.