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5.1 Long-lived asset impairment and assets held for sale—overview
Publication date: 31 Oct 2022
us PP&E and other assets guide
This chapter discusses the accounting for impairment of long-lived assets that are held and used, including tangible assets and intangible assets subject to amortization, and how to assess, measure, and recognize such impairment under ASC 360-10. This chapter also discusses the accounting for long-lived assets that are to be disposed of by sale under ASC 360-10.
5.1.1 Impairment or disposal of long-lived assets—overview
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
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, costs incurred under ASC 340-40, 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, and the impairment guidance in ASC 360-10-35 should be applied until the assets meet the held for sale requirements. See PPE 6 for details on disposals of assets by sale and other than by sale (e.g., abandonment).
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