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ASC 360 Explained: Property, Plant, Equipment, and Impairment

By The Ledgerism Editorial Team · The Ledgerism Brief Editorial Team produces original, methodology-disclosed accounting and tax research—data trackers, databases, and reference guides built to be the most-cited source in the field. Every figure is verified against primary sources including FASB, the IRS, the PCAOB, NASBA, the AICPA, and state boards of accountancy.

ASC 360 is the FASB standard that governs accounting for property, plant, and equipment (PP&E) and other long-lived assets, including how and when to test them for impairment. It sets two measurement models: assets you keep (held and used) and assets you are selling (held for sale). Held-and-used assets use a two-step impairment test; held-for-sale assets are carried at the lower of carrying amount or fair value less cost to sell.

The distinction matters because the model drives when you record a loss, how you measure it, and whether you keep depreciating. This guide walks through both models, the two-step impairment test, the six criteria for held-for-sale classification, and a worked example.

What ASC 360 covers

ASC 360, Property, Plant, and Equipment, applies to long-lived tangible assets and certain intangibles that are amortized. It covers land, buildings, machinery, equipment, leasehold improvements, and right-of-use assets recognized under ASC 842. It does not cover goodwill or indefinite-lived intangibles, which fall under ASC 350.

The standard has two roles. First, it addresses initial recognition and depreciation of PP&E. Second, and where most judgment sits, it sets the impairment rules for long-lived assets. The impairment guidance splits based on how the asset is classified.

Long-lived assets that a company intends to keep operating are classified as held and used. Assets a company has committed to sell are classified as held for sale. Each path has its own measurement rule, and the classification can change if management’s plans change.

Held and used vs held for sale: the two models

ASC 360 measures long-lived assets differently depending on classification. Held-and-used assets stay on the books at depreciated cost unless a two-step impairment test forces a write-down to fair value. Held-for-sale assets stop being depreciated and are carried at the lower of carrying amount or fair value less cost to sell, with any shortfall recognized as a loss.

The table below summarizes the two models side by side.

One asymmetry is worth flagging: a held-and-used impairment can never be reversed if fair value later recovers, but a held-for-sale write-down can be partially reversed if fair value less cost to sell increases, capped at the losses previously recorded.

The two-step impairment test for held-and-used assets

For assets held and used, ASC 360 uses a two-step test that runs only after a triggering event. Step 1 is a recoverability screen comparing carrying amount to undiscounted future cash flows. If those cash flows exceed carrying amount, the asset passes and no loss is recorded. If they fall short, Step 2 measures the loss as carrying amount minus fair value.

Step 0: identify a triggering event

Held-and-used assets are not tested every period. A test is required only when events or changes in circumstances suggest the carrying amount may not be recoverable. Common triggers under ASC 360-10-35-21 include a significant drop in market price, an adverse change in how the asset is used or its physical condition, a change in legal or business climate, cost overruns on acquisition or construction, and a history or forecast of operating losses tied to the asset.

Absent a trigger, no impairment testing is required for held-and-used PP&E. This differs from goodwill, which is tested at least annually under ASC 350.

Step 1: the recoverability test (undiscounted cash flows)

Compare the asset’s carrying amount to the sum of undiscounted future cash flows expected from its use and eventual disposal. If the undiscounted cash flows equal or exceed the carrying amount, the asset is recoverable and testing stops with no impairment. If the undiscounted cash flows are less than the carrying amount, the asset fails the screen and you move to Step 2.

Using undiscounted cash flows here is deliberate. It sets a relatively high bar to pass, so many assets clear Step 1 even when fair value has declined. The screen tests recoverability, not fair value.

Step 2: measure the impairment loss (fair value)

Once an asset fails Step 1, the impairment loss equals the carrying amount minus the asset’s fair value. Fair value is determined under ASC 820, often using discounted cash flows, market prices, or an appraisal. This is the only step where discounting or market pricing enters the held-and-used analysis. The loss is recognized in continuing operations, and the reduced carrying amount becomes the new cost basis. It may not be written back up later.

Testing at the asset group level

Impairment is often tested for an asset group, the lowest level for which identifiable cash flows are largely independent of other assets. When a group fails Step 1, the total loss is allocated pro rata across the long-lived assets in the group based on relative carrying amounts. The catch: an allocation may not reduce any individual asset below its fair value when that fair value is determinable without undue cost and effort. Any excess is reallocated to the remaining assets in the group.

The held-for-sale model

An asset is classified as held for sale only when all six criteria in ASC 360-10-45-9 are met. On that date, depreciation stops and the asset (or disposal group) is measured at the lower of its carrying amount or fair value less cost to sell. A loss is recognized for any write-down, and the asset is presented separately on the balance sheet.

The six held-for-sale criteria

All six must be met, per ASC 360-10-45-9:

1. Management with authority commits to a plan to sell.
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 complete within one year (limited exceptions extend this).
5. The asset is actively marketed at a price reasonable relative to its current fair value.
6. Actions to complete the plan indicate it is unlikely to change or be withdrawn.

“Probable” carries the same meaning as in ASC 450-20, likely to occur. If any criterion fails, the asset stays in held and used and depreciation continues.

Measuring and remeasuring held-for-sale assets

At classification, compare carrying amount to fair value less cost to sell (the expected disposal costs, such as broker commissions and legal fees). Record a loss for any excess of carrying amount over that figure. In each later period until sale, remeasure. If fair value less cost to sell falls further, record an additional loss. If it rises, record a gain, but only up to the cumulative losses recognized while held for sale. Unlike the held-and-used model, limited reversals are allowed.

Worked example: an idle production line

Assume a manufacturer has a production line with a carrying amount of $4,000,000. Demand has fallen, a triggering event, so the company tests for impairment while the line is still held and used.

• Step 1: Estimated undiscounted future cash flows are $3,600,000. Because $3,600,000 is less than the $4,000,000 carrying amount, the line fails the recoverability screen.
• Step 2: The line’s fair value (a discounted cash flow estimate under ASC 820) is $2,900,000. The impairment loss is $4,000,000 minus $2,900,000, or $1,100,000. The new carrying amount is $2,900,000.

Six months later, management commits to sell the line and meets all six held-for-sale criteria. Fair value less cost to sell is $2,650,000 (fair value of $2,800,000 less $150,000 in broker and legal costs). Because $2,650,000 is below the $2,900,000 carrying amount, the company records a further $250,000 loss and stops depreciating the line. If a later appraisal lifts fair value less cost to sell to $2,750,000, the company may recognize a $100,000 gain, capped at the $250,000 held-for-sale loss recorded earlier.

How ASC 360 fits with other standards

ASC 360 sits alongside several standards a preparer will meet in the same reporting cycle. Right-of-use assets recognized under ASC 842 lease accounting are tested for impairment using the ASC 360 held-and-used model. Acquired PP&E is initially measured at fair value under the acquisition rules of ASC 805 business combinations, then depreciated and tested under ASC 360.

Impairment charges are book expenses that often are not deductible until disposal, creating temporary differences accounted for under ASC 740 income tax accounting. Reading where these write-downs land is easier with a working grasp of how to read a balance sheet and how to read an income statement, since impairment hits both statements.

Frequently asked questions

What is the difference between the two impairment models under ASC 360?

Held-and-used assets use a two-step test: a recoverability screen using undiscounted cash flows, then a fair value measurement if the screen fails. Held-for-sale assets skip the recoverability screen and are carried at the lower of carrying amount or fair value less cost to sell. Held-and-used losses cannot be reversed, while held-for-sale write-downs can be partially reversed up to prior losses.

When must a company test PP&E for impairment under ASC 360?

Held-and-used long-lived assets are tested only when a triggering event occurs, such as a sharp decline in market value, adverse changes in use or physical condition, legal or regulatory shifts, cost overruns, or a history or forecast of operating losses tied to the asset. There is no routine annual test, which contrasts with goodwill under ASC 350. Held-for-sale assets are remeasured each period until sold.

Why does ASC 360 use undiscounted cash flows in the recoverability test?

The recoverability screen tests whether an asset can be recovered through use and disposal, not what it is currently worth. Using undiscounted cash flows sets a deliberately high threshold, so many assets pass Step 1 even when fair value has fallen. Discounting only enters Step 2, where fair value is measured under ASC 820 to size the actual loss.

Can an impairment loss be reversed under ASC 360?

It depends on classification. For held-and-used assets, a recognized impairment loss may never be reversed, even if fair value later recovers; the written-down amount becomes the new cost basis. For held-for-sale assets, a subsequent increase in fair value less cost to sell can be recognized as a gain, but only up to the cumulative losses recorded while the asset was classified as held for sale.

What are the six criteria to classify an asset as held for sale?

Under ASC 360-10-45-9, all six must be met: management with authority commits to a sale plan; the asset is available for immediate sale as is; an active program to find a buyer has begun; the sale is probable and expected within one year; the asset is actively marketed at a reasonable price; and it is unlikely the plan will change. If any criterion fails, the asset remains held and used and continues to be depreciated.

Does depreciation continue on assets held for sale?

No. Once all six held-for-sale criteria are met, depreciation and amortization stop, even if the sale takes longer than expected. The asset is instead measured at the lower of carrying amount or fair value less cost to sell and remeasured each period. If classification later reverts to held and used, the asset is measured at the lower of its carrying amount before classification (adjusted for depreciation that would have been recorded) or its current fair value.

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

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