Quick Summary

• Two-Step Test: ASC 360 uses a recoverability test — compare the asset (or asset group’s) carrying amount to its undiscounted future cash flows — before any impairment loss is measured.
• Triggering Events First: Long-lived assets are only tested for impairment when indicators (triggering events) suggest the carrying amount might not be recoverable — there’s no mandatory annual test, unlike goodwill.
• Asset Groups: Assets are tested at the lowest level for which identifiable cash flows are largely independent of other assets and liabilities — often a group of assets, not a single asset in isolation.
• Loss Measurement: If the carrying amount isn’t recoverable, the impairment loss is the excess of carrying amount over fair value (not undiscounted cash flows).
• No Reversal: Once recognized, an impairment loss for assets held and used establishes a new cost basis and cannot be reversed even if the asset’s value later recovers.

What Is ASC 360?

ASC 360, Property, Plant, and Equipment, includes the US GAAP guidance for testing long-lived assets — including finite-lived intangible assets and right-of-use assets from operating leases — for impairment. It provides the standard framework applicable to assets held and used in operations, distinct from the guidance used for goodwill (ASC 350) and indefinite-lived intangible assets, which are tested differently and are covered separately.

Step 1: Identify Triggering Events

Unlike goodwill, long-lived assets held and used are not tested for impairment on a mandatory annual schedule. Instead, testing is triggered only when events or changes in circumstances indicate the carrying amount may not be recoverable. Common triggering events include a significant decrease in the market price of the asset, a significant adverse change in how the asset is used or in its physical condition, a significant adverse change in legal factors or the business climate, an accumulation of costs significantly exceeding the amount originally expected for acquiring or constructing the asset, a current-period operating or cash flow loss combined with a history of losses, or a forecast demonstrating continuing losses.

Step 2: Group Assets Appropriately

Before testing, assets must be grouped at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. In practice, few individual assets generate cash flows on their own — a piece of manufacturing equipment, for example, typically only produces cash flow in combination with other equipment, facilities, and working capital in the same production line. Getting the asset group right matters enormously: testing at too granular a level can trigger an impairment that wouldn’t occur if cash-flow-generating assets were properly grouped together.

Step 3: The Recoverability Test

Once a triggering event is identified and the appropriate asset group determined, ASC 360 applies a two-step approach: first, a recoverability test. The carrying amount of the asset group is compared to the sum of the undiscounted future cash flows expected to result from the asset group’s use and eventual disposition. If the carrying amount is less than or equal to those undiscounted cash flows, the asset is considered recoverable and no impairment loss is recognized — even if fair value happens to be below carrying amount. This “undiscounted” first step is one of the most distinctive features of US GAAP’s approach and is a key point of difference from IFRS, discussed below.

Step 4: Measuring the Impairment Loss

If the recoverability test fails — carrying amount exceeds undiscounted future cash flows — an impairment loss is measured as the amount by which the asset group’s carrying amount exceeds its fair value (following the ASC 820 framework covered above). The loss is allocated to the long-lived assets in the group on a pro-rata basis using their relative carrying amounts, though no individual asset can be written down below its own fair value if that fair value is determinable. Once recorded, the reduced carrying amount becomes the asset’s new cost basis, and that new basis is depreciated or amortized prospectively over the asset’s remaining useful life.

Assets Held for Sale

Long-lived assets classified as held for sale follow a different measurement model: they’re measured at the lower of carrying amount or fair value less costs to sell, and are no longer depreciated or amortized while so classified. Specific criteria must be met to classify an asset as held for sale — management commits to a plan to sell, the asset is available for immediate sale in its present condition, an active program to locate a buyer is underway, the sale is probable within one year, the asset is being actively marketed at a reasonable price, and it’s unlikely significant changes will be made to the plan.

No Reversal of Impairment Losses

Once an impairment loss has been recognized for an asset held and used, US GAAP does not permit reversing it in a later period, even if the asset’s fair value subsequently recovers. This mirrors the no-reversal rule for inventory write-downs under ASC 330 and stands in contrast to IFRS, which permits reversal of impairment losses (other than goodwill) when the reasons for the original impairment no longer apply.

ASC 360 vs. IAS 36

Long-lived asset impairment is one of the clearest examples of a genuine (not just cosmetic) GAAP-IFRS difference:

Because IFRS skips the undiscounted-cash-flow buffer that US GAAP uses, IFRS impairment testing can trigger a loss in situations where the equivalent US GAAP test would pass the recoverability step and record nothing.

Common Pitfalls

• Skipping the recoverability step: jumping straight to a fair-value comparison instead of first testing undiscounted cash flows against carrying amount.
• Wrong asset grouping: testing individual assets in isolation instead of at the lowest level with largely independent identifiable cash flows.
• Missing triggering events: failing to monitor and document indicators (sustained losses, market price declines, adverse business changes) that should prompt a test.
• Attempting to reverse a loss: restoring a previously impaired asset’s carrying amount after a recovery in value, which isn’t permitted for assets held and used under US GAAP.