ASC 360-10 impairment testing is a two-step, event-driven process: when a triggering event suggests a long-lived asset’s carrying amount may not be recoverable, you first compare that carrying amount to the total undiscounted cash flows the asset is expected to generate, and if the carrying amount is higher, you write the asset down to its fair value. The framework applies to property, plant, and equipment, finite-lived intangibles, right-of-use assets held by lessees, and long-lived assets of lessors subject to operating leases. It splits into two tracks depending on whether you plan to keep using the asset or sell it, and each track has its own rules.
What ASC 360-10 Covers, and What It Doesn’t
The standard reaches recognized long-lived assets an entity holds and uses or intends to dispose of. Tangible depreciable property is the most common in-scope asset. Finite-lived intangibles such as patents, customer lists, and amortizable software licenses are also covered.
Several assets that might feel similar sit outside 360-10 and follow different impairment models entirely:
- Goodwill and indefinite-lived intangible assets are tested annually under ASC 350.
- Deferred tax assets follow the valuation allowance framework in ASC 740.
- Financial instruments fall under ASC 320 or ASC 815 depending on the instrument.
- Servicing assets, deferred policy acquisition costs, and full-cost oil and gas properties each have their own specialized guidance.
Applying the undiscounted cash flow recoverability test to goodwill would be wrong from the start, so the first move in any analysis is confirming the asset actually belongs in 360-10. One other boundary worth naming: ASC 360-20 is a different subtopic addressing real estate sales, and it gets conflated with 360-10 because practitioners drop the subtopic number in conversation. The impairment framework described here is 360-10.
When Testing Is Required
There is no continuous testing requirement. You test only when something happens that suggests the carrying amount may not be recoverable. The standard lists indicators, and any one of them can trigger the analysis:
- A significant decrease in the market price of the asset or asset group.
- A significant adverse change in how the asset is used or in its physical condition.
- An adverse regulatory action, a new environmental obligation, or a deterioration in the business environment affecting value.
- An accumulation of costs significantly exceeding what was originally expected for acquisition or construction.
- A current-period operating or cash flow loss combined with a history of such losses, or a forecast projecting continued losses tied to the asset’s use.
- A current expectation that the asset will more likely than not be sold or disposed of significantly before the end of its previously estimated useful life.
The word “significant” carries most of the weight in these indicators and demands judgment. A 2% dip in an asset’s resale value probably doesn’t qualify. A 40% drop almost certainly does. The gray zone between them is where most real-world difficulty lives, and when in doubt, running the recoverability test is the safer path, because failing to test when required is an accounting error.
Step One: The Recoverability Test
The first analytical step compares the asset’s carrying amount to the total undiscounted cash flows expected from using the asset and eventually disposing of it. Carrying amount is historical cost minus accumulated depreciation or amortization at the test date.
If undiscounted cash flows equal or exceed the carrying amount, the asset passes and no impairment is recognized, regardless of what fair value might be. This is the nuance that catches people: an asset can have a fair value well below its carrying amount and still pass, because the test uses undiscounted rather than present-value cash flows. The undiscounted threshold screens out cases that don’t need the more complex measurement.
If the carrying amount exceeds undiscounted cash flows, the asset fails and you move to measurement.
Defining the Asset Group
The test happens at the lowest level at which identifiable cash flows are largely independent of the cash flows from other assets. That unit is the “asset group.” A single piece of equipment feeding a larger production line rarely generates cash flows on its own, so the whole production line would typically form the group.
The group’s carrying amount includes all the long-lived assets in the group, plus liabilities a buyer would have to assume in a disposal, such as environmental obligations that transfer with the property. Other assets and liabilities in the group are included in the group’s carrying amount for recoverability purposes even when they follow different codification topics individually. Inventory and receivables inside a disposal group are one example.
Consistency is not optional. You can’t define groups narrowly in good years to isolate a struggling asset, then broadly in bad years to hide the same asset inside a profitable group. The grouping method should be applied consistently across similar operations and periods.
Step Two: Measuring the Impairment Loss
When an asset or group fails recoverability, the impairment loss equals the amount by which carrying amount exceeds fair value. Measurement uses fair value under ASC 820, a market-based concept: the price that would be received to sell the asset in an orderly transaction between market participants at the measurement date.
ASC 820 sets a three-level hierarchy for the inputs used:
- Level 1 uses quoted prices in active markets for identical assets, which rarely exist for the long-lived assets in scope here.
- Level 2 uses observable inputs other than Level 1 prices, such as quoted prices for similar assets or market-corroborated data.
- Level 3 uses unobservable inputs reflecting the entity’s own assumptions about how market participants would price the asset. Discounted cash flow models are the most common Level 3 technique for these measurements.
Most long-lived asset impairment measurements land at Level 3 because there is no active market for a used manufacturing line or a half-depreciated headquarters. The discount rate, projected cash flows, and terminal value assumptions in a Level 3 model all require judgment, which is why regulators and auditors scrutinize them closely.
Allocating the Loss
When impairment is measured at the group level, the loss is allocated among the individual long-lived assets in the group on a pro rata basis using their relative carrying amounts. No individual asset can be written down below its own determinable fair value. Goodwill, indefinite-lived intangibles, and other items outside 360-10 absorb none of the loss even if they sit in the same group being tested.
The Write-Down Is Permanent
An impairment loss on a held-and-used asset cannot be reversed. If fair value later recovers, you cannot write it back up. The reduced carrying amount becomes the new cost basis, and future depreciation or amortization runs from that lower starting point over the remaining useful life. Book value can end up disconnected from economic reality if conditions improve after the write-down, but the asymmetry is deliberate.
The Held-for-Sale Track
When management decides to sell an asset rather than keep using it, a different measurement model applies. Held-for-sale classification requires all six of the following criteria to be met at the same time:
- Management with the authority to approve the action has committed to a plan to sell.
- The asset is available for immediate sale in its present condition, subject only to terms usual and customary for such transactions.
- An active program to locate a buyer and complete the plan has been started.
- The sale is probable, and the transfer is expected to qualify as a completed sale within one year, with limited exceptions for delays beyond management’s control.
- The asset is being marketed at a price that is reasonable relative to its current fair value. A price set well above fair value signals a lack of genuine intent to sell.
- Actions required to complete the plan indicate that significant changes or withdrawal are unlikely.
Missing any single criterion keeps the asset classified as held and used, which means it continues to be depreciated and tested under the standard framework.
Once all six are met, the asset or disposal group is measured at the lower of carrying amount or fair value less cost to sell. Costs to sell are the incremental direct costs to close the transaction, such as broker commissions and legal fees. Any excess of carrying amount over fair value less cost to sell is recognized immediately as a loss.
Depreciation and amortization stop the moment the asset is classified as held for sale, even if it remains in use temporarily while the sale closes. At each subsequent reporting date, the asset is remeasured at the lower of carrying amount or fair value less cost to sell. Later decreases produce additional losses. Later increases can be recognized as gains, but only up to the cumulative losses previously recognized since held-for-sale classification. The asset can never rise above its carrying amount at the date of initial held-for-sale classification.
The Tax Mismatch
A book impairment loss under ASC 360-10 does not automatically produce a current tax deduction. The federal tax code generally does not allow a deduction for a decline in an asset’s value until the asset is actually disposed of in a closed transaction. For tangible depreciable property, tax basis keeps running through the regular depreciation schedule regardless of the book write-down.
For acquired intangibles subject to IRC Section 197, the disconnect can be sharper. Section 197 requires straight-line amortization over 15 years regardless of changes in value.
The timing difference between book and tax treatment creates a deferred tax asset, because the entity has recognized a book expense that has not yet been deducted for tax. That deferred tax asset reverses when the tax deduction eventually occurs, typically upon disposition, and it should be coordinated with the ASC 740 analysis and evaluated for realizability.
What to Disclose
When an impairment loss is recognized, the notes must include:
- A description of the impaired asset or asset group and the facts and circumstances that led to the impairment.
- The amount of the impairment loss and, if not presented separately on the face of the income statement, the caption under which it appears.
- The method used to determine fair value, including whether the measurement relied on quoted market prices, prices for similar assets, or a valuation technique such as a discounted cash flow model.
- The reportable segment in which the impaired asset sits, if the entity reports segment information under ASC 280.
For assets classified as held for sale, additional disclosures cover the facts and circumstances of the expected sale, the anticipated timing and manner of disposition, and the carrying amounts of the major classes of assets and liabilities in the disposal group.