ASC 360-10-35 Impairment of Long-Lived Assets

ASC 360-10-35, the impairment guidance for long-lived assets under U.S. GAAP, tells you to write an asset down when its carrying amount can no longer be recovered. The mechanics are a two-step test at the asset-group level: first a screen using undiscounted future cash flows, then, if that screen fails, a measurement that reduces the carrying amount to fair value. Testing is triggered by events, not scheduled, and once a loss is recognized on an asset you continue to hold and use, you cannot reverse it.

What the Standard Covers

The guidance applies to long-lived assets an entity holds and uses in operations. Property, plant, and equipment make up most of what gets tested here, together with amortizable intangibles such as patents and customer relationships. Right-of-use assets capitalized under the lease standard are also in scope.

Several categories are carved out and follow their own rules. Goodwill is tested under ASC 350-20, which uses different mechanics and triggers.¹ Indefinite-lived intangibles, inventory, deferred tax assets, and financial instruments are all outside ASC 360-10-35 as well.

Grouping Assets and Picking the Primary Asset

Long-lived assets rarely produce cash flows on their own. A factory building generates nothing without the equipment inside it. ASC 360-10 therefore requires you to test at the lowest level where cash flows are largely independent of other assets and liabilities. That asset group is the unit of account.

How you draw the group matters. Group too broadly and a failing asset can hide behind healthier ones. Group too narrowly and you may trigger a test on assets that are perfectly productive as part of a larger operation. Document why your grouping reflects the way the assets actually work together to generate cash.

Include directly associated liabilities in the group, such as environmental remediation or asset retirement obligations, so the full carrying amount of the economic unit is compared against future cash flows.² Goodwill enters the group only when the group is or includes a reporting unit; partial reporting units do not pick up a share.

Within the group, identify a primary asset. This is the most significant long-lived asset from which the group derives its cash-generating capacity, usually the one with the longest remaining useful life and the greatest replacement cost. It cannot be land, an indefinite-lived asset, or an internally generated intangible that was expensed as incurred. The primary asset’s remaining useful life sets the time horizon for the cash flow projections in Step 1.

Triggering Events

Long-lived assets are not tested on a schedule. You test when something signals that carrying amount may not be recoverable. ASC 360-10-35-21 lists six categories of indicator:

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, such as major damage or a shift to part-time production.
A significant adverse change in the business or legal climate, such as regulatory action, loss of a key customer, or competitive shifts affecting the asset’s value.
Costs of acquisition or construction accumulating well above what was originally budgeted.
A current-period operating or cash flow loss combined with a history of losses, or a projection showing continued losses associated with the asset group.
A current expectation, more likely than not (greater than 50 percent), that the asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life.

Interest rate changes on their own are not a triggering event under U.S. GAAP. Monitor these indicators continuously rather than only at year-end, and when one is present, document the connection between the event and the specific asset group before running the formal test.

Step 1: The Recoverability Screen

Step 1 is a screen, not a measurement. The question is whether the entity can recover the carrying amount through future use and eventual disposal.

Estimate the total undiscounted future cash flows the asset group will generate over the remaining useful life of the primary asset, plus the estimated residual value at the end of that period. Time value of money is deliberately ignored here, which makes the screen a generous one. An asset group has to be in fairly bad shape to fail it.³

If undiscounted cash flows exceed carrying amount, the group passes and no loss is recorded. The process stops there. If carrying amount exceeds undiscounted cash flows, move to Step 2.

A few constraints on the cash flow estimate: exclude financing costs and income tax effects, and base the projections on management’s best assumptions about how the asset will actually be used, consistent with the entity’s operating plans. If the primary asset has a shorter remaining life than other assets in the group, the projection still ends at the primary asset’s life and you estimate the residual value of the whole group at that point.²

Step 2: Measuring the Loss

If the group fails Step 1, the impairment loss equals the excess of carrying amount over fair value.⁴ Fair value is determined under ASC 820, the price a willing buyer would pay in an orderly transaction.

ASC 820 permits three approaches and does not rank them. Choose the one best suited to the asset and the available data, maximizing observable market inputs:

The market approach uses prices from actual transactions in identical or comparable assets. It works when an active market for similar property or equipment exists.
The income approach discounts estimated future cash flows to present value using a risk-adjusted rate. Unlike the Step 1 screen, this calculation reflects the time value of money. It is common when comparable transactions are scarce.
The cost approach reflects what it would cost to replace the asset’s service capacity at current prices, adjusted for obsolescence. It often fits specialized assets that rarely trade.

Preparers often use more than one technique and may engage valuation specialists for complex or specialized assets.⁵

Allocating the Loss Within the Group

The loss reduces only the carrying amounts of long-lived assets within the scope of ASC 360-10. Goodwill, indefinite-lived intangibles, and other out-of-scope items are never written down through this loss, even when they sit in the same group.

Allocate the loss to the in-scope assets pro rata based on relative carrying amounts, with one constraint: no individual asset’s carrying amount is reduced below its own fair value if that fair value is determinable without undue cost and effort. If the initial allocation would push an asset below its fair value, reallocate the excess to the remaining long-lived assets in the group, again pro rata. If every asset has already been written down to its own fair value and unallocated loss remains, that residual cannot be recognized.

Recording the Loss and Life After Impairment

Recognize the loss in the period it is measured. On the income statement, it sits within income from continuing operations, typically alongside depreciation and amortization. If the impaired asset belongs to a disposal group that qualifies as a discontinued operation under ASC 205-20, the loss is reported within that discontinued operation line instead.⁶

On the balance sheet, the carrying amount drops to fair value and that figure becomes the new cost basis. Depreciation is recalculated over the remaining useful life on the reduced amount. Reassess whether the useful life itself should be shortened in light of the event that triggered the test.

Once recognized on an asset held and used, the impairment is permanent. Even if fair value later recovers, the write-down cannot be reversed.⁴

Disclosure

Disclose the circumstances that led to the impairment, tying the narrative back to the triggering event. State the amount of the loss, identify the method used to determine fair value, and identify the business segment where the asset is reported. If you used the income approach, disclose the significant assumptions behind the cash flow projections.

When the Held-for-Use Model Stops Applying

Two situations pull an asset out of the held-for-use framework described above.

The first is classification as held for sale. All six of the following must be met at the same time: management with proper authority commits to a plan to sell; the asset is available for immediate sale in its present condition on customary terms; an active program to locate a buyer has begun; the sale is probable and expected to close within one year; the asset is being actively marketed at a price reasonable in relation to current fair value; and it is unlikely the plan will be significantly changed or withdrawn. Once all six are met, depreciation stops and the asset is measured at the lower of carrying amount or fair value less costs to sell.² Subsequent increases in fair value less costs to sell can be recognized as a gain, but only up to the cumulative amount of losses previously recognized on the asset; any further recovery waits for the sale to close.⁴

The second is abandonment. Under ASC 360-10-35-47, a long-lived asset to be abandoned is treated as disposed of when it ceases to be used, and remains classified as held and used until that point.⁷ If the abandonment date falls before the previously estimated end of useful life, revise the depreciation schedule so the asset is depreciated to salvage value by the date it will cease to be used. A temporarily idled asset is not abandoned; the abandonment rules apply only when management has decided permanently to take the asset out of service.

Tax Timing

A GAAP impairment write-down and a tax deduction for the same loss almost never land in the same period. Tax law generally does not permit the deduction until the asset is actually disposed of by sale, closure, or abandonment. Book carrying amount drops on impairment; tax basis does not move until disposal.

That gap typically creates a deferred tax asset: a future tax benefit that arrives when the disposal happens. If a company records a GAAP impairment in 2025 but does not sell or physically close the asset until 2027, the tax deduction waits until 2027. Claiming an abandonment loss for tax purposes requires prior ownership, intent to abandon, and an affirmative act of abandonment, so keep documentation of the decision and any notices to relevant parties.

How This Differs From IFRS

If you report under both U.S. GAAP and IFRS, or are moving between them, the impairment models diverge in ways that change both timing and amounts:

U.S. GAAP uses a two-step process. IAS 36 uses one step, comparing carrying amount directly to the higher of fair value less costs of disposal or value in use.
The U.S. GAAP recoverability screen uses undiscounted cash flows, which is more forgiving. IFRS starts with discounted cash flows through value in use, so impairment is recognized sooner in many scenarios.
U.S. GAAP prohibits reversal of impairment on held-for-use assets. IFRS permits reversal, except for goodwill, when the conditions that caused the impairment improve.
Interest rate changes are not a triggering event under U.S. GAAP. Under IFRS, rising discount rates can trigger testing because they directly reduce value in use.

The same asset can be impaired under IFRS but not under U.S. GAAP, or impaired by a different amount, and value recoveries that reverse under IFRS stay locked in under U.S. GAAP. Dual reporters run separate analyses and maintain parallel documentation for each framework.

1
Financial Accounting Standards Board. Accounting Standards Update 2021-03 – Intangibles Goodwill and Other (Topic 350)
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Deloitte Accounting Research Tool. Overview of the Accounting and Reporting for Long-Lived Assets and Discontinued Operations
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Deloitte Accounting Research Tool. Measurement of an Impairment Loss
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Deloitte Accounting Research Tool. Measurement of an Impairment Loss
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Deloitte Accounting Research Tool. Deloitte Roadmap Fair Value Measurements and Disclosures – Valuation Techniques
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Financial Accounting Standards Board. Accounting Standards Update 2014-08 – Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity
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Deloitte Accounting Research Tool. Assets to Be Abandoned