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5.3 Accounting for long-lived assets to be disposed of by sale
Publication date: 31 Oct 2022
us PP&E and other assets guide
Once all the criteria in ASC 360-10-45-9 are met, a long-lived asset (disposal group) should be classified as held for sale. The long-lived asset (disposal group) should be reported at the lower of its carrying value or fair value less cost to sell beginning in the period the held for sale criteria are met. The carrying amount of the asset (disposal group) should be adjusted each reporting period for subsequent changes in fair value less cost to sell. A loss should be recognized for any subsequent write-down to fair value less cost to sell. A gain should be recognized for any subsequent increase in fair value less cost to sell, but not in excess of the cumulative loss previously recognized.
Once classified as held for sale, depreciation and amortization should not be recorded for any long-lived assets included in the disposal group. Because right-of-use assets (ROU assets) are within the scope of ASC 360-10, reporting entities should cease amortizing any right-of-use assets included in a disposal group once classified as held for sale, whereas interest on any related lease liabilities should continue to be accreted. See PPE 5.3.1 for guidance regarding the held for sale criteria and PPE 5.3.3 for guidance regarding the measurement of a disposal group.
A reporting entity with a component that meets the held for sale criteria should also consider whether the component meets the criteria for reporting discontinued operations. See FSP 27 for further details regarding the discontinued operations criteria, as well as presentation and disclosure requirements for components qualifying as a discontinued operation.
When a disposal group includes assets that are not within the scope of ASC 360-10, the order of impairment testing is different from the order of an asset group that is held and used. See PPE 5.3.2 for information regarding the order of impairment testing for a disposal group that qualifies as held for sale and the interaction with other standards.
5.3.1 Held for sale criteria—overview
ASC 360-10-45-9 requires that a long-lived asset (disposal group) should be classified as held for sale in the period in which all of the held for sale criteria are met. All criteria must be met at or prior to the balance sheet date for a long-lived asset (disposal group) to qualify as held for sale.
5.3.1.1 Management commitment to a plan (held for sale)
ASC 360-10-45-9(a) requires that management, having the authority to approve the action, must commit to a plan to sell the asset (disposal group). The plan should specifically identify (1) all major assets to be disposed of, (2) significant actions to be taken to complete the plan, including the method of disposition and location of those activities, and (3) the expected date of completion. Merely exploring or assessing the feasibility of a sale of a long-lived asset (disposal group) does not constitute a commitment to a plan to sell.
If the board of director’s approval for a plan of disposal is required by company policy or is sought by management, the commitment criterion generally is not met until such approval has been obtained. Similarly, if shareholder approval is required by company policy or is sought by management, the commitment criterion generally is not met until shareholder approval has been obtained. However, if management and the board of directors control a majority of the reporting entity’s voting shares, approval by management and the board of directors is usually sufficient, as shareholder approval would be considered perfunctory.
When formal approval of a sale is required to be obtained from a third party (e.g., a governmental agency or a lender) the nature and likelihood of the third party approval should be considered in determining whether management has the ability to commit to a disposal plan. Routine or perfunctory approvals normally do not impact management’s ability to commit to a plan to sell. Additionally, in situations where obtaining such approval could extend the period required to complete the sale beyond one year, it may still be appropriate to classify the disposal group as held for sale, provided a firm purchase commitment is probable within one year (see Example 9 of ASC 360-10-55-45).
In bankruptcy proceedings, due to the increased power of the bankruptcy court or creditors’ committee, management may not have the level of authority to approve the sale of assets. Instead, this authority may be with the bankruptcy court or creditors’ committee. Therefore, the held for sale criteria may not be met if approval of the bankruptcy court or creditors’ committee has not yet been obtained.
Commitment to a plan after the balance sheet date (held for sale)
A reporting entity may commit to a plan to sell a long-lived asset (disposal group) shortly after its balance sheet date, but before issuance of its financial statements. In these situations, the long-lived assets (disposal group) should continue to be classified as held and used until all of the held for sale criteria are met in the subsequent reporting period. The held and used classification determination made at the balance sheet date should not be revised for a decision to sell the asset after the balance sheet date.
However, a plan to sell a held and used long-lived asset for a loss shortly after the balance sheet date should be evaluated to determine whether a held and used impairment existed as of the balance sheet date, as events or conditions arising after the balance sheet date often affirm conditions that existed as of the balance sheet date. Depending on the significance of the asset in relation to the overall asset group and the facts and circumstances surrounding the sale of the asset, it may be necessary to test the asset group under the held and used impairment approach at the balance sheet date. If required to be tested for recoverability, estimates of future cash flows should reflect all available information based on facts and circumstances as of the balance sheet date, including the likelihood of the sale of the related asset. Furthermore, disclosures should be considered if a reporting entity determines that no impairment existed as of the balance sheet date, but the asset is subsequently sold for a loss shortly after year end.
5.3.1.2 Available for immediate sale in present condition (held for sale)
ASC 360-10-45-9(b) requires that the asset (disposal group) be available for immediate sale in its present condition, subject only to terms that are usual and customary for sales of such assets (disposal groups). There should be no ongoing operational requirement to use the asset (disposal group), and the reporting entity should have the intent and ability to sell the asset (disposal group) in its current condition. For example, if a reporting entity is selling a manufacturing facility but a backlog of orders exists and needs to be fulfilled prior to sale, the manufacturing facility would not be considered available for immediate sale and this criterion would not be met. Alternatively, if the reporting entity was selling the manufacturing facility and the customer orders, this criterion would be met. See ASC 360-10-55-37 through ASC 360-10-55-42 for further examples illustrating this criterion.
5.3.1.3 Program to locate a buyer and other actions (held for sale)
ASC 360-10-45-9(c) requires the initiation of an active program to locate a buyer and other actions required to complete the plan to sell the asset (disposal group). To meet this criterion, a reporting entity should be actively seeking a buyer. However, this does not mean a seller needs to have identified a buyer or have executed a letter of intent or purchase and sale agreement for this criterion to be met. For example, if management has engaged a third party (e.g., a sales or real estate agent) to identify and approach potential buyers to submit bids for an asset (disposal group), a plan to sell may exist.
5.3.1.4 Sale is probable and within one year (held for sale)
ASC 360-10-45-9(d) requires that the sale of the asset (disposal group) is probable, and transfer of the asset (disposal group) is expected to qualify for recognition as a completed sale within one year. The term “probable” refers to a future event or events “likely to occur,” which is generally considered a 75% threshold. In assessing whether a sale is probable and will be completed within one year, management should consider historical experience in closing similar sales transactions, the market in which the asset (disposal group) is being sold, potential buyers’ ability to obtain any necessary financing, the regulatory environment in which the entity operates, and any other relevant factors.
Under ASC 842, if the reporting entity plans to enter into a sale and leaseback transaction and it is probable that the sale requirements under ASC 842-20 will be met within a year, this criterion would likely be met. Refer to LG 6.3 for guidance on determining whether a sale has occurred under ASC 842. Under ASC 840, if the reporting entity plans to enter into a sale and leaseback transaction for more than a minor portion of a property, this criterion would not be met. See ASC 360-10-55-43 through ASC 360-10-55-49 for examples illustrating this criterion.
See PPE 5.3.7 for the ASC 360-10-45-11 exceptions to the one-year requirement for events or circumstances beyond a reporting entity’s control.
5.3.1.5 Actively marketed for sale at a reasonable price (held for sale)
ASC 360-10-45-9(e) requires that the asset (disposal group) is being actively marketed for sale at a price that is reasonable in relation to its current fair value. This is because the price at which a long-lived asset (disposal group) is being marketed is indicative of whether the entity currently has the intent and ability to sell the asset (disposal group). A market price that is reasonable in relation to fair value indicates that the asset (disposal group) is available for immediate sale, whereas a market price in excess of fair value indicates that the asset (disposal group) is not available for immediate sale, as a reporting entity may simply be “sizing the market” to ascertain interest in the asset (disposal group).
5.3.1.6 Unlikely significant changes to plan will be made (held for sale)
ASC 360-10-45-9(f) requires that actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. In considering whether this criterion is met, reporting entities should consider their history of similar sales transactions and whether significant changes to initial plans for those similar transactions occurred. A history of significant changes to sales plans or withdrawal from sales plans may indicate that this criterion has not been met.
In some cases, a reporting entity may wish to dispose of an operating segment consisting of multiple components, but it is unclear if a single buyer will acquire the segment or if portions of the segment will be sold in multiple sales. In other cases, a reporting entity may decide to dispose of a segment, but is uncertain whether it can locate a buyer at a price that is acceptable and, if not, it will spin off the segment to its shareholders. In these cases, it is unlikely a plan exists as the disposal is subject to significant changes.
5.3.1.7 Held for sale criteria for real estate
As discussed in PPE 1.7, reporting entities constructing assets for sale or rental should consider the incremental guidance in ASC 970, Real estate - general. Specifically, ASC 970-360-35-3 states the held for sale criteria discussed in PPE 5.3.1 do not apply to real estate projects, or portions of a real estate project, that are substantially complete and that are to be sold. These properties are considered held for sale regardless of whether they meet the held for sale criteria (e.g., a real estate property that is substantially complete would be treated as held for sale irrespective of the estimated timing of the sale). If, however, the real estate project is currently under development (but not substantially complete), held for future development, or held for use (e.g., to be leased to a third party), ASC 970-360-35-3 states that the held and used impairment guidance should be followed (see PPE 5.2).
5.3.2 Order of impairment testing for long-lived assets held for sale
As detailed in ASC 360-10-35-39, the carrying amounts of any assets that are not covered by ASC 360-10, including indefinite-lived intangible assets and goodwill, that are included in a disposal group should be adjusted in accordance with other applicable GAAP before measuring the disposal group’s fair value less cost to sell (see PPE 5.3.3). A reporting entity should perform impairment testing in the following order:
- Test other assets (e.g., accounts receivable, inventory) under applicable guidance
- Test goodwill and indefinite-lived intangible assets for impairment under ASC 350
- Test the disposal group for impairment under ASC 360-10
The carrying amounts are adjusted, if necessary, for the result of each test prior to performing the next test. This order is different than that applied for assets to be held and used (see PPE 5.2.2). Performing testing in the correct order is necessary as the order of impairment testing may impact the amount of goodwill impairment loss recognized.
5.3.3 Measuring the fair value of a disposal group (held for sale)
An asset (disposal group) should be reported at the lower of its carrying value or its fair value less cost to sell, beginning in the period the held-for-sale criteria are met. The fair value of a disposal group should be measured consistent with the guidance of ASC 820-10 and should be determined from the perspective of a market participant considering, among other things, appropriate discount rates, valuation techniques, the most advantageous market, and assumptions about the highest and best use of the disposal group.
Additional losses should be recognized for any subsequent decreases in fair value less cost to sell of the disposal group. Any loss recognized is considered a loss on sale rather than an impairment loss. Additionally, any subsequent increase in the disposal group’s fair value less cost to sell should be recognized, but not in excess of the cumulative loss on sale previously recognized. See PPE 5.3.3.1 through PPE 5.3.3.7 for guidance surrounding the measurement of specific assets and liabilities including a disposal group that qualifies as held for sale.
5.3.3.1 Costs to sell a disposal group (held for sale)
Costs to sell a disposal group include incremental, direct costs to transact the sale and represent the costs that result directly from and are essential to a sale transaction that would not have been incurred by the entity had the decision to sell not been made. ASC 360-10-35-38 describes the types of costs that qualify as costs to sell.
Costs to sell are the incremental direct costs to transact a sale, that is, the costs that result directly from and are essential to a sale transaction and that would not have been incurred by the entity had the decision to sell not been made. Those costs include broker commissions, legal and title transfer fees, and closing costs that must be incurred before legal title can be transferred. Those costs exclude expected future losses associated with the operations of a long-lived asset (disposal group) while it is classified as held for sale. Expected future operating losses that marketplace participants would not similarly consider in their estimates of the fair value less cost to sell of a long-lived asset (disposal group) classified as held for sale shall not be indirectly recognized as part of an expected loss on the sale by reducing the carrying amount of the asset (disposal group) to an amount less than its current fair value less cost to sell. If the sale is expected to occur beyond one year as permitted in limited situations by paragraph 360-10-45-11, the cost to sell shall be discounted.
These types of costs may vary depending on the transaction, but generally include legal fees, brokerage commissions, and closing costs that must be incurred before legal title can be transferred. For example, costs to sell would include costs to raze property in accordance with a sale agreement or costs to remove machinery and equipment from a building in conjunction with the sale. However, costs to sell generally exclude holding costs such as insurance, rent, property taxes, retention bonuses, security, and utilities while the disposal group is held for sale. Future losses associated with the operations of a disposal group while it is classified as held for sale should also be excluded from costs to sell.
A reporting entity should expense all costs to sell as incurred. The deferral of such costs is not appropriate since these costs do not meet the definition of an asset in CON 8, Conceptual Framework for Financial Reporting. Additionally, deferring the costs would be similar to recognizing a contingent gain prior to its realization on the date of sale. Per ASC 450-30-25-1, contingent gains are not recognized until they are realized.
5.3.3.2 Allocating goodwill to a disposal group (held for sale)
ASC 350-20-40-1 through ASC 350-20-40-7 include guidance for allocating reporting unit goodwill to a disposal group. When a disposal group is a reporting unit, the reporting entity should include the goodwill of that reporting unit in the disposal group’s carrying amount to determine any gain or loss on disposal. When some, but not all, of a reporting unit is to be disposed of, the accounting for that reporting unit’s goodwill will depend on whether the disposal group constitutes a business. If the disposal group does not constitute a business, no goodwill should be attributed to the disposal group. Alternatively, if the disposal group constitutes a business, the reporting entity should attribute a portion of the reporting unit’s goodwill to the disposal group in determining the gain or loss on the disposal of the business. In accordance with ASC 350-20-40-3, the amount of goodwill that is attributed to the disposal group should be based on the relative fair values of (1) the disposal group and (2) the portion of the reporting unit that will be retained.
A scenario may arise where a disposal group that previously met the definition of a business (i.e., prior to the adoption of ASU 2017-01) no longer meets the definition of a business. For example, an acquired hotel may have met the definition of a business prior to the adoption of ASU 2017-01, and as a result, goodwill may have been recognized in acquisition accounting. However, subsequent to the adoption of ASU 2017-01, the hotel may no longer meet the definition of a business (e.g., if substantially all of the fair value of the set is concentrated in the value of the hotel building). If a reporting entity disposes of the hotel in a subsequent period, and the hotel qualifies as held for sale, goodwill should not be allocated to the disposal group because the hotel does not constitute a business. As a result, the goodwill recognized from the initial acquisition of the hotel would be "stranded" in the remaining reporting unit. In this scenario, we believe that the reporting entity should consider whether the reporting unit to which that goodwill was assigned has experienced a goodwill impairment indicator since substantially all of the benefit that gave rise to the assignment of goodwill is now disposed of (or classified as held for sale). We believe this is consistent with the guidance of ASC 350-20-40-7.
See BCG 9.10 through BCG 9.10.6 for further information on identifying reporting units and allocating goodwill to a disposal group.
5.3.3.3 Other assets and liabilities in a disposal group (held for sale)
A disposal group may include long-lived assets as well as other assets that are not within the scope of ASC 360-10 (e.g., accounts receivable, inventory, indefinite-lived intangible assets). A disposal group may also include liabilities directly associated with the assets to be sold and that will be transferred in the transaction. For example, legal obligations that transfer with a long-lived asset, such as certain environmental obligations or obligations that a buyer would settle when assumed as part of the group (e.g., warranties), should be included in the disposal group. The inclusion of liabilities in a disposal group may result in a zero or negative carrying amount. In these cases, a reporting entity is still required to perform a recoverability test whenever events or changes in circumstances indicate that the carrying amount of the asset group may not be recoverable (see PPE 5.2.3).
As discussed in PPE 5.3.2, the carrying amounts of any assets that are not within the scope of ASC 360-10 that are included in a disposal group classified as held for sale should be adjusted for impairment in accordance with other applicable GAAP prior to measuring the fair value less cost to sell of the disposal group. These assets should continue to be measured in accordance with other applicable GAAP each reporting period until the disposal is completed.
When a disposal group that is held for sale includes an asset retirement obligation (ARO) and its associated asset retirement costs (ARC), the guidance in ASC 360-10-35-43 should be followed. The reporting entity should cease depreciation of the ARC once the held for sale criteria are met. However, accretion of the ARO should continue to be recognized until the disposal is completed.
Outstanding debt obligations should not be included in a disposal group unless the debt will be assumed by the buyer in the transaction. The debt obligation should not be included in the disposal group even if the outstanding debt obligation is required to be repaid by the seller as a result of the sale transaction with the proceeds from the sale.
5.3.3.4 Including amounts from AOCI in a disposal group (held for sale)
ASC 830-30-45-13 includes guidance regarding the treatment of cumulative translation adjustments (CTA) included in accumulated other comprehensive income (AOCI) when determining the carrying amount of a disposal group that is a foreign entity.
An entity that has committed to a plan that will cause the cumulative translation adjustment for an equity method investment or a consolidated investment in a foreign entity to be reclassified to earnings shall include the cumulative translation adjustment as part of the carrying amount of the investment when evaluating that investment for impairment. The scope of this guidance includes an investment in a foreign entity that is either consolidated by the reporting entity or accounted for by the reporting entity using the equity method. This guidance does not address either of the following
- Whether the cumulative translation adjustment shall be included in the carrying amount of the investment when assessing impairment for an investment in a foreign entity when the reporting entity does not plan to dispose of the investment (that is, the investment or related consolidated assets are held for use)
- Planned transactions involving foreign investments that, when consummated, will not cause a reclassification of some amount of the cumulative translation adjustment.
When a disposal group is classified as held for sale, the carrying amount of the disposal group should include the CTA that will be eliminated upon sale when measuring the disposal group at the lower of its fair value less cost to sell or carrying amount. However, such amounts should remain classified within AOCI until the disposal group’s sale date in accordance with ASC 830-30-40-1.
Although ASC 830-30-40-1 and ASC 830-30-45-13 only address the treatment of cumulative translation adjustments, we believe that other amounts in AOCI should be analogized to this guidance (e.g., unrealized gains or losses on investments classified as available for sale, unrealized employee benefit plan gains or losses, etc.) when determining the carrying amount of a disposal group that is held for sale.
5.3.3.5 Deferred income taxes in a disposal group (held for sale)
A reporting entity should determine whether deferred taxes need to be included in the carrying amount of a disposal group classified as held for sale. According to ASC 360-10-20, a disposal group represents assets to be disposed of together as a group in a single transaction and liabilities directly associated with those assets that will be transferred in the transaction. A determination of whether deferred tax assets and liabilities should be included in the disposal group depends on whether the buyer will acquire any of the tax attributes and succeed to the tax basis of assets and liabilities. If the buyer will be acquiring tax benefits or assuming tax liabilities (otherwise known as “inside” basis difference), deferred taxes should be included in the disposal group. While the determination ultimately depends on the terms of the sale and the provisions of the relevant tax law in the applicable jurisdiction, in general sales of asset groups in the form of the sale of the shares of a corporation would result in the tax bases of assets and liabilities and tax attributes carrying over to the buyer. Conversely, a sale of an asset group that is structured as the sale of assets and liabilities will result in the buyer establishing a new tax basis in those assets and liabilities.
If the sale is structured as a sale of stock, deferred taxes associated with any book-tax basis differences in the assets and liabilities of the disposal group will usually be assumed by the buyer. Therefore, these deferred taxes should be included in the carrying amount of the disposal group because the deferred taxes meet the definition of assets to be disposed of or liabilities to be transferred (included in the definition of a disposal group in ASC 360-10-20).
A decision to sell the shares of a subsidiary could require the recognition of additional deferred taxes associated with the difference between the seller’s carrying amount of the subsidiary’s net assets in the financial statements and its basis in the shares of the subsidiary (otherwise known as “outside” basis difference). Because those deferred taxes will remain with, and be settled by the seller, they should not be included in the disposal group. Refer to ASC 740-30-25-10 and TX 11.1 for further guidance regarding the recognition of any temporary difference related to the outside basis difference.
If the sale is structured as an asset sale, the seller will usually retain and settle or recover the deferred tax assets and liabilities (i.e., any inside basis differences will reverse in the period of sale and become currently deductible by or taxable to the seller). Therefore, in an asset sale, deferred taxes should usually not be included in the carrying amount of the assets and liabilities that are held for sale because they will not be transferred to the buyer (i.e., they are not part of the disposal group as defined in ASC 360-10-20).
5.3.3.6 Loss exceeds carrying amount of long-lived assets (held for sale)
In some situations, the difference between the carrying amount and fair value less cost to sell of the disposal group (i.e., the implied loss on disposal) may exceed the carrying amount of long-lived assets in the disposal group. For example, if the carrying amount of the disposal group is $100 and fair value less cost to sell is $75, there is an implicit $25 loss on sale. If the carrying amount and fair value of the long-lived assets in the disposal group are $20 and $5, respectively, the $25 loss would exceed the $20 carrying amount.
In these situations, the SEC staff has indicated that there are two acceptable interpretations of the literature for accounting for the loss on sale at the held-for-sale date.
- The first method interprets ASC 360-10-35-43 as redefining the unit of account as the disposal group; thus, a loss should be recognized to record the disposal group at the lower of its carrying amount or its fair value less cost to sell. Under this approach, the loss on sale would be $25 at the held-for-sale date, recorded as a valuation allowance against the disposal group as a whole. If the amount of the loss exceeds the carrying value of the disposal group as a whole, the reporting entity would recognize the remaining loss as a liability. The valuation allowance and liability would be adjusted for any changes in subsequent measurement of the disposal group. The reporting entity should clearly disclose where such amounts are reflected in the financial statements and whether additional losses are expected in the future.
- The second method interprets ASC 360-10-35-40 as limiting the loss to the excess of carrying amount over the fair value of the long-lived assets because only long-lived assets are within the scope of ASC 360-10. Using this approach, the loss on sale would be $15 at the held-for-sale date.
The discussion above relates to measurement of disposal groups classified as held for sale under ASC 360-10. If the asset group is held and used, an impairment loss cannot reduce the carrying amount of the long-lived assets below their fair value. See PPE 5.2.5.
5.3.3.7 Retained NCI in a disposal group (held for sale)
When a reporting entity records a subsidiary as held for sale but plans to retain a noncontrolling equity investment in the subsidiary, the reporting entity should reclassify all of its interest in the disposal group’s assets and liabilities as held for sale at the date the held for sale criteria are met. Due to the loss of control, the sale would be treated as a sale of 100% of the ownership interest. The retained interest would be measured at fair value. It would not be appropriate to reclassify only the pro rata portion of each of the subsidiary’s balance sheet line items being sold to held for sale in the reporting entity’s balance sheet. See EM 5.2 for the accounting for changes in interest. See BCG 5.5 for additional details on changes in interest resulting in loss of control.
5.3.4 Impact of held for sale loss on subsidiary financial statements
When a parent records a held for sale loss on a subsidiary, the subsidiary should assess if an impairment triggering event has occurred for the subsidiary’s standalone financial statements. In the parent’s financial statements, the parent would measure the subsidiary at the lower of its carrying amount or fair value less cost to sell. If separate financial statements of the subsidiary are prepared, the subsidiary should assess if a triggering event has occurred for an impairment test on its long-lived assets. If so, such test should be completed assuming the assets are to be held and used. That is, a recoverability test would be based on cash flows on an undiscounted basis over the remaining life of the asset group, as determined based on the group’s primary asset, not based on fair value. The difference in the basis of accounting by the parent and the subsidiary may result in the parent reducing the carrying amount of the subsidiary in the parent’s financial statements while an impairment loss may not be required in the subsidiary’s financial statements.
5.3.5 Newly acquired assets classified as held for sale
ASC 360-10-45-12 provides specific criteria which, if met, require the acquirer to present newly acquired assets as assets held for sale at the acquisition date. The criteria require that (1) the sale of the asset (disposal group) is probable, (2) the transfer of the asset is expected within a year, and (3) it is probable that the acquirer will meet the other held-for-sale criteria within a short period of time after the acquisition date (usually within three months). If the disposal group is a business or a nonprofit activity, the disposal group should also be immediately classified as a discontinued operation at the acquisition date. The objective of this requirement is to include in discontinued operations those assets and operations that will never be considered part of a reporting entity’s continuing operations. See FSP 27.3.1.1 for additional information relating to discontinued operations considerations.
5.3.6 Changes to a plan of sale (held for sale)
Based on a change in circumstances that were previously considered unlikely to occur, a reporting entity may have a change to a plan of sale and decide not to sell a long-lived asset (disposal group) previously classified as held for sale. At the time the decision is made, the long-lived asset (disposal group) should be reclassified as held and used. Upon reclassification as held and used, the long-lived asset (disposal group) should be measured in accordance with ASC 360-10-35-44 at the lower of (1) its carrying amount before the asset (disposal group) was classified as held for sale, adjusted for any depreciation or amortization expense that would have been recognized had the assets continued to be classified as held and used, or (2) the fair value at the date of the subsequent decision not to sell. Any adjustment to the carrying amount based on reclassifying the long-lived assets (disposal group) to held and used should be reflected in the income statement within continuing operations in the period the decision is made not to sell.
5.3.7 Held for sale classification beyond one year
As discussed in PPE 5.3.1.4, to qualify as held for sale the sale of the asset (disposal group) must be probable and transfer of the asset (disposal group) must be expected to qualify for recognition as a completed sale within one year. ASC 360-10-45-11 grants certain exceptions to the one-year requirement as there may be events or circumstances beyond a reporting entity’s control that extend the period required to complete the sale of an asset or disposal group. An exception to the one-year requirement applies in the following situations, which are illustrated in ASC 360-10-55-44 through ASC 360-10-55-49:
- If at the date a reporting entity commits to a plan to sell a long-lived asset (disposal group), the entity reasonably expects that others (not a buyer) will impose conditions on the transfer of the disposal group that will extend the period required to complete the sale and (1) actions necessary to respond to those conditions cannot be initiated until after a firm purchase commitment is obtained and (2) a firm purchase commitment is probable within one year.
- If a reporting entity obtains a firm purchase commitment and, as a result, a buyer or others unexpectedly impose conditions on the transfer of a long-lived asset (disposal group) previously classified as held for sale that will extend the period required to complete the sale and (1) actions necessary to respond to the conditions have been or will be timely initiated and (2) a favorable resolution of the delaying factors is expected.
- If during the initial one-year period, circumstances arise that previously were considered unlikely and, as a result, a long-lived asset (disposal group) previously classified as held for sale is not sold by the end of that period and (1) during the initial one-year period the entity initiated actions necessary to respond to the change in circumstances, (2) the asset (disposal group) is being actively marketed at a price that is reasonable given the change in circumstances, and (3) the other criteria in ASC 360-10-45-9 are met.
Repeated delays in the sale of an asset or disposal group may raise questions as to whether the held for sale criteria have been met. If at any time the criteria for held for sale classification are no longer met (except for the permitted exceptions discussed above), a long-lived asset or disposal group classified as held for sale should be reclassified as held and used (see PPE 5.3.6).
5.3.8 Presentation and disclosure (held for sale)
PwC. All rights reserved. PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.
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