Asset values can change rapidly due to one or many events. Whether your entity is a corporate conglomerate or a not-for-profit entity, your organization may have been adversely impacted by a single event or a series of incidents, or perhaps a decision has been made to dispose of certain assets.
ASC Topic 360 provides guidance on accounting for the impairment or disposal of long-lived assets. The methodology which should be followed in order to test for impairment considers the “recoverability” of an asset. Testing of long lived assets to be held is not necessarily an annual procedure, but the recoverability of long lived assets must be tested if there is:
- A significant decrease in the market price of a long-lived asset (or asset group);
- A significant adverse change in the extent or manner in which a long-lived asset (or asset group) is being used or in its physical condition;
- A significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset (or asset group), including an adverse action or assessment by a regulator;
- An accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset (or asset group);
- A current-period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset (or asset group);
- A current expectation that, more likely than not, a long-lived asset (or asset group) will be sold or otherwise disposed of significantly before the end of its previously estimated useful life.
When these trigger events occur, it is time to consider the applicability of the Accounting Standard Classification Subtopic ASC 360-10, (ASC 360).
Applicable assets include long-lived assets of an entity to be held and used or to be disposed of. ASC Topic 360 is not applicable to goodwill, intangible assets which are not being amortized, long-term customer relationships of financial institutions and certain other assets.
The steps of ASC Topic 360 can be summarized as follows:
- Determine if a trigger event has occurred
- Classify assets or asset groupings as “to be held and used” or “to be disposed of”
- Determine if testing the carrying amounts of assets is needed
- Test long-lived assets for recoverability and impairment
- Determine the fair value of applicable assets
- Measure and recognize impairment loss
Public and private companies as well as not-for-profit entities need to seek expert advice from independent valuation professionals to determine whether the events or circumstances which have impacted the entity implicate ASC 360. Our work will provide you with a cost-effective, high-quality solution to facilitate financial reporting compliance. Public, private and not-for-profit clients choose Sigma Valuation Consulting for our subject matter expertise, quality of service and independence.
- FASB ASC Topic 805 / IFRS 3R, Business Combinations
- FASB ASC Topic 820 / IFRS 13, Fair Value Measurements
- FASB ASC Topic 350 / Impairment: Goodwill and Other
- FASB ASC Topic 360 / Impairment or Disposal of Long-Lived Assets
- FASB ASC Topic 718 [FAS 123(R)]
- US Internal Revenue Code Section 1060