Events or circumstances may occur that result in a material and sustained decrease in the cash flows generated from long-lived assets, potentially resulting in impairment. As defined in ASC 360-10
, impairment is the condition that exists when the carrying amount of a long-lived asset (asset group) exceeds its fair value. Whether a long-lived asset is held and used or to be disposed of by sale determines how to measure, recognize, and present the carrying amounts of such assets in the financial statements.
Long-lived assets are subject to two accounting models for assessing their carrying amounts: (1) assets to be held and used and (2) assets to be disposed of by sale. Figure PPE 5-1 depicts the models for making these assessments.
Figure PPE 5-1
Models for assessing the carrying amounts of long-lived assets
The impairment guidance for long-lived assets to be held and used applies to, among other things: (1) a right-of-use asset recorded by lessees (following adoption of ASC 842
), (2) long-lived assets recorded by lessees under capital lease (prior to adoption of ASC 842
), (3) long-lived assets of lessors subject to operating leases, (4) proved oil and gas properties that are being accounted for using the successful efforts method, and (5) long-term prepaid assets.
The impairment provisions of ASC 360-10-35
do not apply to (1) financial assets, (2) long-lived assets for which the accounting is prescribed in other applicable accounting guidance (e.g., deferred income taxes, goodwill, and indefinite-lived intangibles), and (3) long-lived assets for which the accounting is prescribed for certain specialized industries (e.g., the record and music, motion picture, broadcasting, software, and insurance industries).
If a long-lived asset (asset group) has not yet met the held for sale requirements of ASC 360-10-45-9
, the long-lived assets should continue to be classified as held and used. For example, management might be exploring strategic alternatives for long-lived assets, including continuing to use the assets in a modified manner, abandoning the assets, or disposing of the assets through sale. In these situations, the assets should be classified as held and used for purposes of applying the impairment guidance in ASC 360-10-35
until the assets meets the held for sale requirements. See PPE 6
for details on disposals of assets by sale and other than by sale (e.g., abandonment).