A long-lived asset should be derecognized when it is disposed. There are various ways that a reporting entity can dispose or partially dispose of a long-lived asset. Prior to disposing of a long-lived asset, a reporting entity should determine whether the disposal group meets the held for sale criteria. For further details regarding a disposal group and the held for sale criteria, see PPE 5.3. This chapter discusses various aspects of accounting for disposals by sale (see PPE 6.2) and disposals other than by sale (see PPE 6.3).
The derecognition of nonfinancial assets and in substance nonfinancial assets for transactions with non-customers is codified in ASC 610-20. The objectives of ASC 610-20 are to (1) generally align the accounting for transfers of nonfinancial assets to non-customers with the accounting for contracts with customers under ASC 606 and (2) provide specific guidance for transfers of certain nonfinancial assets (such as equipment or intangible assets). Additionally, ASC 610-20 eliminates rules specifically addressing sales of real estate (i.e., ASC 360-20). ASC 610-20 was effective at the same time a reporting entity adopted the amended revenue guidance in ASC 606.
In addition to accounting for the disposal of nonfinancial assets, a reporting entity may have related activities applicable to the guidance under ASC 420-10, Exit or Disposal Cost Obligations. This guidance addresses the recognition, measurement, and reporting of costs associated with exit and disposal activities, including restructuring activities. ASC 420-10 focuses on the recognition of liabilities, specifically requiring that companies only record such liabilities when they are incurred. This guidance is discussed further in PPE 6.4.
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