Impairments under ASC 350 and ASC 360
Impairment testing for goodwill, intangible assets, and other long-lived assets can be challenging. Identifying and evaluating events or changes in circumstances that may indicate impairment requires significant judgment. Additionally, applying the impairment models requires developing estimates and assumptions that can significantly affect the analyses and conclusions. Make sure you get it right using BDO's "Blueprint".
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This Blueprint focuses on the impairment tests for goodwill, indefinite-lived intangible assets, and other long-lived assets, which are codified in the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 350, Intangibles — Goodwill and Other, and ASC 360, Property, Plant, and Equipment. This Blueprint also includes interpretive guidance, examples, and insights for applying the impairment guidance in ASC 350 and ASC 360.
Scope
Impairment testing of goodwill and indefinite-lived intangible assets is in the scope of ASC 350. Impairment testing for finite-lived intangible assets and other long-lived assets is in the scope of ASC 360. If multiple types of assets are tested for impairment at the same time, ASC 350 and ASC 360 prescribe a specific order to perform the impairment tests.
Impairment Models
The impairment models are summarized in the following table:
| Asset | Impairment test | unit of account | frequency | Measurement |
|---|---|---|---|---|
| Indefinite-lived intangible assets |
| Typically, single asset | Annually and upon triggering event | Fair value of the asset |
| Long-lived assets (tangible assets and finite-lived intangible assets) | Two-step quantitative test | Asset group | Upon triggering event |
|
| Goodwill |
| Reporting unit | Annually and upon triggering event | Fair value of the reporting unit |
Assets Held for Sale
Assets held for sale are not depreciated, amortized, or subject to impairment testing. Instead, the assets held for sale are remeasured to the lower of their carrying amount or fair value less costs to sell. An asset or disposal group is classified as held for sale in the period when all the following criteria are met:
- Management, having the authority to approve the action, commits to a plan to sell the asset or disposal group.
- The asset or disposal group is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets or disposal groups.
- An active program to locate a buyer and other actions required to complete the plan to sell the asset or disposal group have been initiated.
- The sale of the asset or disposal group is probable, and transfer of the asset or disposal group is expected to qualify for recognition as a completed sale, within one year.
- The asset or disposal group is being actively marketed for sale at a price that is reasonable in relation to its current fair value.
- Actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.
Accounting Alternatives for Private Companies and Not-For-Profit Entities
U.S. GAAP provides private companies and NFP entities with the following accounting alternatives related to goodwill and intangible assets:
- Amortization of goodwill
- Evaluation of goodwill impairment triggering events only as of the end of a reporting period
- Non-separation of specific customer-related intangible assets and noncompetition agreements from goodwill