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ASC 360: Long-Lived Asset Impairment, Explained

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ASC 360 sets the rules for testing and writing down long-lived assets held and used, such as property, plant, equipment, and finite-lived intangibles. When a triggering event suggests the carrying amount may not be recoverable, you run a two-step test: first compare the carrying amount to undiscounted future cash flows (the recoverability test), and only if it fails do you measure the loss as carrying amount minus fair value. This guide walks the mechanics, the triggers, held-for-sale treatment, and how it differs from goodwill.

This page focuses on the impairment model. For the broader capitalization and depreciation rules of the same standard, see our companion guide, ASC 360 property, plant, and equipment.

What ASC 360 covers

ASC 360-10 governs long-lived assets, which include property, plant, and equipment and finite-lived (amortizing) intangibles. It applies both while an asset is held and used and once it is classified as held for sale. It does not cover goodwill or indefinite-lived intangibles, which fall under ASC 350.

The standard has two distinct jobs. It tells you how to capitalize and depreciate an asset over its life, and it tells you when and how to write that asset down if its value drops. Impairment is the write-down side. A long-lived asset is impaired when its carrying amount (cost less accumulated depreciation) exceeds what the business can recover from using and eventually disposing of it.

The two-step recoverability test

For assets held and used, ASC 360-10 uses a two-step test triggered only when events indicate the carrying amount may not be recoverable. Step 1 compares the carrying amount of the asset group to the sum of its undiscounted future cash flows. If those cash flows equal or exceed carrying amount, testing stops with no impairment. If they fall short, Step 2 measures the loss as carrying amount minus fair value.

The two steps use different cash flow bases on purpose. Step 1 is a screen, so it uses undiscounted cash flows, a deliberately forgiving hurdle that keeps modest, recoverable declines from triggering write-downs. Step 2 is measurement, so it uses fair value, which typically reflects discounted cash flows or market evidence under ASC 820.

Worked example

Assume a manufacturing line has a carrying amount of $10 million after a customer loss. The following numbers show how the two steps can reach different conclusions than a quick glance suggests.

Note the size of the loss. Step 1 fails by only $1 million, but the recorded loss is $3.5 million, because Step 2 measures against fair value, not against the undiscounted shortfall. The reduced $6.5 million becomes the asset’s new cost basis, and it is depreciated over the remaining useful life. For assets held and used, ASC 360 prohibits reversing an impairment loss even if value later recovers.

Asset grouping

Impairment is tested at the asset group level, defined as the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets. A single machine rarely generates independent cash flows, so it is usually tested as part of a production line, store, or facility. Grouping matters because it can change the result: a weak asset pooled with strong ones may pass, while the same asset tested alone may fail.

Triggering events

ASC 360-10-35-21 lists indicators that a long-lived asset may be impaired. Held-and-used assets are tested only when one of these triggers appears, not on a fixed annual schedule. Management should monitor for these events each reporting period and document the assessment.

• A significant decrease in the market price of the asset.
• An adverse change in the extent or manner of use, or in the physical condition, of the asset.
• An adverse change in legal factors or business climate, including regulatory action or investigation.
• An accumulation of costs significantly higher than originally expected to acquire or construct the asset.
• A current-period operating or cash flow loss combined with a history of losses or a projection of continuing losses.
• A more-likely-than-not expectation that the asset will be sold or disposed of significantly before the end of its previously estimated useful life.

Held-for-sale assets

An asset changes models once it is classified as held for sale. It is no longer depreciated, and it is measured at the lower of carrying amount or fair value less costs to sell. Unlike the held-and-used model, a later recovery in fair value can be recognized as a gain, but only up to the cumulative loss previously recognized.

ASC 360-10-45-9 sets six criteria that must all be met for held-for-sale classification:

1. Management with authority commits to a plan to sell the asset.
2. The asset is available for immediate sale in its present condition.
3. An active program to locate a buyer has begun.
4. The sale is probable and expected to close within one year.
5. The asset is actively marketed at a price reasonable relative to its current fair value.
6. Actions required to complete the plan make significant changes or withdrawal unlikely.

ASC 360 vs. goodwill under ASC 350

The most common point of confusion is why goodwill follows different rules. Goodwill and indefinite-lived intangibles are not amortized and are not covered by ASC 360. They are tested under ASC 350, at least annually, using a one-step quantitative test after ASU 2017-04: compare the reporting unit’s fair value directly to its carrying amount, with the loss limited to the goodwill balance. There is no undiscounted screen.

When an asset group being tested under ASC 360 also contains goodwill, the ordering matters. You test and adjust the other long-lived assets under ASC 360 first, then test goodwill under ASC 350 using the adjusted carrying amounts. Goodwill itself often arises from a business combination under ASC 805, and understanding how goodwill works and how to test it is the natural next read.

Both standards ultimately measure a loss against fair value, but the recoverability screen in ASC 360 means a long-lived asset can drop in value and still avoid a write-down, while goodwill has no such cushion. Because impairment turns on the relationship between carrying amount and value, a solid grasp of book value and how it differs from market value helps frame every one of these tests.

FAQ

What is the two-step impairment test under ASC 360?

It is the model for long-lived assets held and used. Step 1 (recoverability) compares the asset group’s carrying amount to the sum of its undiscounted future cash flows. If the cash flows equal or exceed carrying amount, there is no impairment. If they fall short, Step 2 measures the loss as carrying amount minus fair value.

Why does Step 1 use undiscounted cash flows?

Step 1 is a screen, not a measurement. Undiscounted cash flows set a deliberately high, forgiving hurdle so that only assets with a real shortfall proceed to loss measurement. This prevents write-downs for temporary or modest declines. Step 2 then switches to fair value, which reflects discounting and market evidence, to size the actual loss.

What triggers an ASC 360 impairment test?

Testing is required only when events indicate the carrying amount may not be recoverable. Common triggers include a significant market price decline, adverse changes in how the asset is used or its physical condition, adverse legal or business-climate changes, cost overruns, current and historical operating losses, and an expectation of selling the asset well before the end of its useful life.

Can an ASC 360 impairment loss be reversed?

For assets held and used, no. The reduced carrying amount becomes the new cost basis and cannot be written back up, even if value later recovers. Held-for-sale assets are the exception: a later increase in fair value less costs to sell can be recognized as a gain, but only up to the cumulative loss previously recognized on that asset.

How is ASC 360 different from goodwill impairment under ASC 350?

ASC 360 covers depreciable and amortizing assets and uses a two-step test with an undiscounted recoverability screen, run only when a triggering event occurs. ASC 350 covers goodwill and indefinite-lived intangibles, which are not amortized and are tested at least annually using a one-step comparison of fair value to carrying amount, with the loss capped at the goodwill balance.

At what level is impairment tested under ASC 360?

At the asset group, defined as the lowest level for which identifiable cash flows are largely independent of other assets. A standalone machine usually cannot generate independent cash flows, so it is tested within a line, store, or facility. Grouping can change the outcome, since a weak asset combined with stronger ones may pass a test it would fail alone.

Reviewed by The Ledgerism Editorial Team. Last reviewed: July 2026.

Related guides

• ASC 820
• ASC 450
• ASC 340-40
• ASC 330