Impairment of Non-Financial Assets - ASC 350, 360 & IAS 36
Impairment of Long-Lived Assets and Goodwill

Accounting Resources for ASC 350, ASC 360, and IAS 36

Impairment exists when the carrying amount of an asset exceeds its fair value; however, calculating an impairment charge involves significant estimate and judgment. Various financial statement accounts such as long-lived assets, intangible assets (both finite-lived and indefinite-lived), and goodwill are all required to be tested for impairment, but these types of non-financial assets all have different impairment accounting requirements! Therefore, it is important to understand the requirements for the following types of non-financial assets:

  • Long-lived assets and finite-lived intangible assets*: Governed by ASC 360 (U.S. GAAP) and IAS 36 (IFRS)
  • Indefinite-lived intangible assets and goodwill: Governed by ASC 350 and IAS 36

* Note that for the remainder of this topic page, we will only reference long-lived assets (and not separately discuss finite-lived intangible assets) because the impairment accounting is exactly the same!

If you are looking to learn more about the impairment accounting requirements for these three types of non-financial assets, you’ve come to the right place! This page serves as a one-stop shop for all of your impairment needs and includes a discussion on related accounting issues, links to our various blog posts and eLearning courses on impairment, and additional links to Big 4 accounting firm resources on both U.S. GAAP and IFRS. Note that impairment of financial assets is covered in a separate topic page.

Welcome Video

Welcome Video

Accounting Issues

Accounting Issues

As mentioned above, the requirements for testing impairment of long-lived assets, indefinite-lived intangible assets, and goodwill are all different; therefore, it’s important to know what guidance governs the type of asset you’re testing and when testing is required!

Impairment testing: Type and timing

Impairment of long-lived assets (typically PP&E) is governed by ASC 360-10:

  • Long-lived assets are amortized and therefore are only tested for impairment when an indicator of impairment is present (a “triggering event”). A triggering event is an event or change in circumstances that would more likely than not reduce the fair value of an asset below its carrying amount. ASC 360-10-35-21 lists examples of triggering events that may require an impairment test but note that this list is not all inclusive and judgment is required!

Impairment of indefinite-lived intangible assets is governed by ASC 350-30 and impairment of goodwill is governed by ASC 350-20.

  • Both indefinite-lived intangible assets and goodwill are not amortized; therefore, impairment testing is required to be performed on an annual basis (at a minimum). Note that these assets must be tested for impairment between annual tests if a triggering event occurs and the company believes the asset is impaired (i.e., fair value is less than carrying amount). ASC 350 provides example qualitative factors to consider whether an asset has been impaired in the interim; however, this is not an all-inclusive list and judgment is also required in assessing an interim impairment.

Impairment testing: Level to test

Understanding the appropriate level to test for impairment is also important, and this will depend on the type of asset you are testing.

Cash flows are integral to nearly all impairment tests. For example, companies need cash flows to determine whether long-lived assets are recoverable (i.e., undiscounted cash flows), but may also use an income approach (discounted cash flows) to estimate the fair value of those assets. But, the challenge is that cash flows are not always available for individual assets, so what do companies do? Before a company can begin the process of estimating future cash flows, it must first determine the lowest level at which it can obtain identifiable future cash flow information. In most instances, an asset is used together with other assets to generate future cash flows. For example, consider a manufacturing facility. It is generally difficult to determine the cash flows associated with a particular machine, as the related cash flows are usually generated by the entire production line or production facility. This is also traditionally how management reviews its assets as well. If assets are used in conjunction with one another to generate a single cash flow, then grouping of these assets is required to assess whether the asset group has been impaired. Therefore, long-lived assets are generally tested at the asset group level but also can be tested at the individual asset level. There are several methodologies that can be utilized to determine asset groups, but judgment must be applied.

Indefinite-lived intangible assets are tested for impairment on an individual asset basis (i.e., they cannot be combined with other assets such as finite-lived intangibles or goodwill). Goodwill must be tested for impairment at the reporting unit level. A company is required to start at the operating segment level (as defined by ASC 280) and look to the level below (component) to identify reporting units; however, certain criteria must be met for a component to be classified as a reporting unit. The identification of reporting units has been scrutinized by the SEC for years, so it’s important to appropriately document the identification of your reporting units for goodwill impairment testing. 

Impairment testing: Measurement and recognition

As you might have guessed, the impairment tests are also different between ASC 360 and ASC 350:

  • Long-lived assets (ASC 360) – Impairment is tested using a two-step approach if a triggering event is identified:
    • Step 1: Recoverability test:
    • Step 2: Measurement of impairment:
    • The company must measure the fair value of the asset (or asset group) using an appropriate fair value technique (ASC 820) and compare the fair value to the carrying value of the asset (or asset group). If the fair value is greater than the carrying value there is no impairment! If the fair value is less than the carrying value, the difference in amounts represents the amount of the impairment charge and the asset (or asset group) is written down to the fair value. If the asset is part of an asset group, the impairment loss must be allocated to the various assets within the group in accordance with rules set out in ASC 360-10-35.
  • Indefinite-lived intangible assets and goodwill (ASC 350) – Impairment is tested on an annual basis (at a minimum) using a one-step, quantitative approach. However, an optional, qualitative assessment can be performed to determine whether the quantitative assessment is necessary. Note that the following represents the steps for indefinite-lived intangible assets (for goodwill, you would replace “asset” with “reporting unit” because goodwill is tested at the reporting unit level):
    • For goodwill, if the fair value of a reporting unit is less than its fair carrying value, the impairment loss recognized is limited to the total amount of goodwill allocated to that reporting unit. Also note that all reporting units, including those with zero or negative carrying amounts, must apply the requirements of the quantitative test!

Order of impairment testing

The order of testing these various assets for impairment is important to ensure each asset is valued appropriately after consideration of impairment. When testing assets for impairment, a company must adhere to the following hierarchy:

  1. Test the carrying amounts of any assets (such as accounts receivable, inventory, contract assets, and other financial assets) that are outside the scope of ASC 350 and ASC 360 to ensure the carrying amount is appropriate in accordance with applicable U.S. GAAP topics. These are typically the “more liquid” balance assets.
  2. Indefinite-lived intangible assets
  3. Long-lived assets and finite-lived intangible assets
  4. Goodwill is tested last! This is easy to remember if you think of the concept of goodwill; it’s the “stuff” left over after the individually recognized items from a business combination are recorded.

Also, don’t forget that impairments from each step are recognized before performing next step!

Accounting Differences: ASC 350 and ASC 360 vs. IAS 36

Accounting Differences: ASC 350 and ASC 360 vs. IAS 36

U.S. GAAP (ASC 350 and ASC 360) and IFRS (IAS 36) have similar overall objectives. However, there are some differences related to testing, measuring, and recognizing impairment (note that this is not an all-inclusive listing of differences):

Area

U.S. GAAP

IFRS

Reversal of impairment

Reversal of an impairment loss is not allowed!

Reversal of goodwill impairment loss is not allowed. For other assets, if appropriate, impairment can be reversed up to the newly

estimated recoverable amount.

Long-lived assets:
Level to test

Assets are tested at the asset group or the individual asset level

Assets are tested at the Cash Generating Unit (CGU) level or the individual asset level

Long-lived assets: Test

If impairment indicators exist, a two-step approach is taken to calculate an asset or asset group impairment

If impairment indicators exist, a one-step approach is taken to calculate a CGU or asset impairment

Long-lived assets: Impairment calculation

The amount by which the carrying amount of the asset (or asset group) exceeds its fair value

The amount by which the carrying amount of the asset (or CGU) exceeds its recoverable amount (which is the higher of (1) fair value less costs to sell or (2) value in use)

Indefinite-lived intangibles: Level to test

At the individual asset level (i.e., may not be combined with

other assets such as finite-lived intangibles or goodwill)

If the individual asset does not generate cash inflows that are largely independent from other assets, then the asset should be tested as part of the CGU to which it relates

Indefinite-lived intangibles: Test

At least annually:

·        An optional, one-step qualitative approach is available; and/or

·        A one-step quantitative approach is performed (if qualitative test does not pass or if qualitative test is not performed)

At least annually, a one-step quantitative approach is taken to calculate asset impairment (no qualitative assessment is allowed)

Indefinite-lived intangibles: Impairment calculation

The amount by which the carrying amount of the asset exceeds its fair value

The amount by which the carrying amount of the asset (or CGU) exceeds its recoverable amount

Goodwill: Level to test

At the reporting unit (RU) level

At the CGU or group of CGUs level

Goodwill: Test

At least annually:

·        An optional, one-step qualitative approach is available; and/or

·        A one-step quantitative approach is performed (if qualitative test does not pass or if qualitative test is not performed)

At least annually, a one-step quantitative approach is taken to calculate impairment (no qualitative assessment is allowed)

Goodwill: Impairment calculation

The amount by which the RU’s carrying amount exceeds the RU’s fair value. The impairment is limited to the amount of goodwill

allocated to that RU.

The amount by which the CGU’s carrying amount, including goodwill, exceeds the CGU’s recoverable amount. The impairment first reduces goodwill to zero, and if there is any

additional impairment, it is generally allocated to each asset in the CGU on a pro rata basis.

 

Online Learning

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Check out the details of our impairment courses below:

Impairment: PP&E and Intangible Assets (1.5 CPE) – Need to calculate an impairment loss? This course covers the impairment of fixed assets (ASC 360) and impairment of intangible assets (ASC 350).
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Impairment: Goodwill (1.0 CPE) – This course will explore the goodwill impairment test, including considerations for testing and required disclosures.
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We’ve bundled all these eLearning courses into an impairment course collection for big savings!

Accounting Resources

Accounting Resources

There are numerous resources available on accounting for leases under both ASC 842 and IFRS 16. To save you time searching, we have compiled a list of resources below to assist you in your research and quest to master lease accounting.

Resources from GAAP Dynamics:

We have written several blogs on accounting for impairment, which are categorized and listed below (by most recently published). Click on the links below to view the full blog post.

Triggering event? Let's get off our assets and assess for impairment!
During this time of uncertainty, you must evaluate whether the impacts of COVID-19 trigger non-financial asset impairments under ASC 350 and ASC 360.

Bring it back y'all! Amortizing goodwill (again) under ASC 350!
The FASB continues to receive feedback from public companies stating that the cost of accounting for goodwill still outweighs the benefits!

Auf Wiedersehen, Step 2! Changes to goodwill impairment under ASC 350)
Goodbye Step 2. I never really liked you! This post explains the changes to goodwill impairment testing under U.S. GAAP in accordance with ASC 350.

A timely reminder: Accounting for an impairment loss under ASC 360
Impairment has been all over the news lately. So how do you account for an impairment loss under ASC 360? This post walks you through the guidance.

Goodwill accounting (ASC 350) in the news. Here's the scoop!
Current goodwill accounting under ASC 350 is not easy. Luckily, the rules are changing. This post gets you up-to-speed on the latest developments.

Thank the PCC! Goodwill accounting and other reasons private companies can smile.
The Private Company Council makes goodwill accounting and other complex subjects easier for private entities. It’s important to know your options!

We publish blog posts regularly on various accounting topics and issues. If you want to stay updated by receiving an email notification as new blog posts are published, you can subscribe to our blog here: Subscribe to GAAPology

Resources From Accounting Firms:

The Big 4 accounting firms have informative, in-depth guides on Lease Accounting. To save you time and effort in your research, we have linked to them below.

U.S. GAAP
IAS 36

None of the Big 4 firms specifically publish guides or handbooks related to IAS 36; however, each firm either has a dedicated overall IFRS web page (where you can search for IAS 36) or has a specific webpage on IAS 36. Here are the links to those web pages:

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