ASC 360-10
Grouping Long-Lived Assets Classified as Held and Used
35-23 For purposes of recognition and measurement of an impairment loss, a long-lived asset or assets shall be grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. However, an impairment loss, if any, that results from applying this Subtopic shall reduce only the carrying amount of a long-lived asset or assets of the group in accordance with paragraph 360-10-35-28.
Some long-lived assets may have largely independent cash flows and therefore should be tested for impairment individually. However, many long-lived assets are used in combination with other assets to generate combined cash flows in such a way that the cash flows of each asset in the group are not largely independent of the cash flows of other assets. In that case, entities must group assets together to test them for impairment. Such a grouping is called an asset group. The ASC master glossary defines an asset group as follows:
An asset group is the unit of accounting for a long-lived asset or assets to be held and used, which represents the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities.
Connecting the Dots
The term “asset group” is used throughout this publication to refer to the long-lived asset or group of assets, including one or more long lived assets and possibly liabilities, that is classified as held and used and is being tested for impairment.
An asset group may include not only long-lived assets that are within the scope of ASC 360-10 but also other assets such as receivables, inventory, indefinite-lived intangible assets, or goodwill. (See Section 2.3.7 for information about the order in which impairment testing should be performed when an asset group includes long-lived assets that are not within the scope of ASC 360-10.)
An entity performing an impairment analysis should begin at the lowest level for which there are largely independent cash flows; this level would depend on the entity’s specific facts and circ*mstances (e.g., an individual production line, real estate asset, plant, or retail store). Cash flows may be grouped at a higher level only if the entity determines that largely independent cash flows do not exist at a lower level. In determining the lowest level of identifiable cash flows for a long-lived asset or asset group, the entity may need to use significant judgment and should consider all relevant facts and circ*mstances. Such facts and circ*mstances may include the following:
- The interdependency of revenue-generating activities and the extent to which such assets must be operated together.
- The interdependence or interchangeability of assets and the extent to which such assets are operated together.
- The presence and extent of a shared-cost structure.
- The extent to which the entity manages its business at various levels, such as a local, district, or regional management level.
- The entity’s distribution characteristics, such as regional distribution centers, local distributors, or individual plants.
- The extent to which purchases are made by an individual location or on a combined basis.
The degree to which the revenues of a group of assets depend on the revenue-generating activities of other assets may affect an entity’s determination of an asset group. Interdependency of revenues can result from the way an entity is structured or from contractual requirements outside the entity’s control. If the entity cannot suspend the revenue-generating activities of one group of assets because of contractual or other restrictions outside the entity’s control, a higher-level asset grouping may be justified.
ASC 360-10-55-35 and 55-36 contain an example illustrating a higher-level asset grouping that is based on the interdependence of revenues in such a way that assets must be operated together.
ASC 360-10
Example 4: Grouping Assets for Impairment Review
55-35 Varying facts and circ*mstances will inevitably justify different groupings of assets for impairment review. While grouping at the lowest level for which there are identifiable cash flows for recognition and measurement of an impairment loss is understood, determining that lowest level requires considerable judgment.
55-36 This Example illustrates the need for judgment in grouping assets for impairment, as discussed in paragraphs 360-10-35-23 through 35-25. In this Example, an entity operates a bus entity that provides service under contract with a municipality that requires minimum service on each of five separate routes. Assets devoted to serving each route and the cash flows from each route are discrete. One of the routes operates at a significant deficit that results in the inability to recover the carrying amounts of the dedicated assets. The five bus routes would be an appropriate level at which to group assets to test for and measure impairment because the entity does not have the option to curtail any one bus route.
The degree to which an entity’s assets are interchangeable may also affect its determination of asset groups. In some situations, largely identifiable cash flows may not be associated with a specific asset group, in which case the entity may be justified in grouping assets at a higher level. For example, if the entity uses a fleet of interchangeable trucks, planes, or cargo ships to deliver goods, the asset group might be at the fleet level if cash flows of an individual asset cannot be identified.
A shared cost structure may affect an entity’s determination of its asset groups. Shared costs are costs incurred by the entity that cannot be identified or attributed to a specific asset group. If cash outflows from a group of assets result from significant shared operating costs (e.g., shared sales force, manufacturing, distribution, warehousing, research and development), it may be necessary to group assets at a higher level. The entity should ensure that the amount of shared costs is significant compared with its overall costs. For example, a shared marketing function alone without other significant shared costs would not be expected to justify a higher-level asset grouping. We do not believe that the existence of shared back-office costs alone (e.g., finance, payroll, IT systems) would support a higher-level asset grouping. Further, we think that shared operating costs should be distinguished from allocated direct costs, which are costs that can be directly associated with a specific asset group but may be recognized at the corporate level for administrative purposes. If allocated direct costs are related to a specific asset group even though such costs may not be allocated for internal reporting purposes, we believe that an entity should specifically allocate those costs to the asset group when evaluating the cash flows of that asset group. In addition, the entity should not consider those direct costs to be shared costs when determining whether a significant portion of the cash flows is interrelated.
Assets and liabilities are grouped under U.S. GAAP for different purposes, and the guidance on grouping assets varies. For example, ASC 350-20 requires entities to group assets (and liabilities) into a reporting unit when testing goodwill for impairment. The identification of an asset group for impairment under ASC 360-10 differs from the identification of a reporting unit under ASC 350-20. The determinations of a reporting unit and asset group must be based on the respective ASC requirements as well as on the entity’s specific facts and circ*mstances. An asset group is often at a lower level than a reporting unit but in some cases may be at the same level. However, we would not expect an asset group to be at a higher level than a reporting unit.
An entity should ensure that it appropriately documents the judgments it uses in determining asset groups. Asset-group determinations are subject to change on the basis of changes in facts and circ*mstances (see Section 2.3.8).
Bridging the GAAP
Under IAS 36, assets are tested at the individual asset level or, if it is not possible to estimate the recoverable amount of an individual asset, at the cash-generating unit (CGU) level. A CGU is the smallest group of assets generating cash inflows that are largely independent of the cash inflows from other assets. Under U.S. GAAP, the assessment of independent cash flows for an asset group is generally based on the net cash flows (i.e., cash inflows and outflows). Under IAS 36, however, the focus is exclusively on whether cash inflows are largely independent. While the resulting outcomes are often the same under the two sets of standards, the different requirements could lead to differences.
2.3.1 Entity-Wide Assets
ASC 360-10
35-24 In limited circ*mstances, a long-lived asset (for example, a corporate headquarters facility) may not have identifiable cash flows that are largely independent of the cash flows of other assets and liabilities and of other asset groups. In those circ*mstances, the asset group for that long-lived asset shall include all assets and liabilities of the entity.
35-25 In limited circ*mstances, an asset group will include all assets and liabilities of the entity. For example, the cost of operating assets such as corporate headquarters or centralized research facilities may be funded by revenue-producing activities at lower levels of the entity. Accordingly, in limited circ*mstances, the lowest level of identifiable cash flows that are largely independent of other asset groups may be the entity level. See Example 4 (paragraph 360-10-55-35).
Some long-lived assets may not have identifiable cash flows that are largely independent of the cash flows of the entity’s other assets (and liabilities). Under ASC 360-10-35-25, “the cost of operating assets such as corporate headquarters or centralized research facilities may be funded by revenue-producing activities at lower levels of the entity.” Accordingly, in limited circ*mstances, such long-lived assets are evaluated for impairment on an entity-wide level because largely independent cash flows do not exist for the asset. In that case, the recoverability test estimates whether the entity, as a whole, will generate cash flows sufficient to recover the carrying amount of all of its assets.
An entity-wide asset is tested for recoverability after any required testing of lower-level asset groups is performed. Paragraph B46 of the Background Information and Basis for Conclusions of FASB Statement 144 describes the residual approach as one method that an entity may use to test an entity-wide asset for recoverability:
The cash flows used in the recoverability test should be reduced by the carrying amounts of the entity’s other assets that are covered by this Statement to arrive at the cash flows expected to contribute to the recoverability of the asset being tested. Not-for-profit organizations should include unrestricted contributions to the organization as a whole that are a source of funds for the operation of the asset.
Therefore, under the residual approach, the entity compares (1) the carrying amount of the entity-wide asset with (2) the cash flows available to support the entity-wide asset calculated as the total undiscounted cash flows for the entire entity less the carrying amounts of the lower-level asset groups. If (1) is greater than (2), the entity would need to perform the second step of the recoverability test for the entity-wide asset.
Example 2-1
Entity A grouped its long-lived assets for impairment testing into (1) asset groups AG-1 and AG-2, for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities, and (2) asset group AG-EW, which consists of an entity-wide information technology system long-lived asset that does not have identifiable cash flows. The carrying amount of AG-EW is $450.
Entity A has identified events and circ*mstances indicating that the carrying amounts of AG-2 and AG-EW might not be recoverable. Entity-wide assets are tested for recoverability after any required testing of lower-level asset groups. Entity A first considers recoverability of both AG-1 and AG-2 as follows:
On the basis of the recoverability test, A determines that AG-2 is not recoverable and recognizes an impairment loss of $400.
Then, A applies the residual approach to test AG-EW for recoverability. For simplicity, in this example, it is assumed that no cash outflows are associated with AG-EW. The calculation under the residual approach is as follows:
On the basis of the recoverability test for AG-EW, A determines that AG-EW is recoverable; no impairment is recorded for AG-EW.
2.3.2 Goodwill in Asset Groups
ASC 360-10
Effect of Goodwill When Grouping
35-26 Goodwill shall be included in an asset group to be tested for impairment under this Subtopic only if the asset group is or includes a reporting unit. Goodwill shall not be included in a lower-level asset group that includes only part of a reporting unit. Estimates of future cash flows used to test that lower-level asset group for recoverability shall not be adjusted for the effect of excluding goodwill from the group. The term reporting unit is defined in Topic 350 as the same level as or one level below an operating segment. That Topic requires that goodwill be tested for impairment at the reporting unit level.
35-27 Other than goodwill, the carrying amounts of any assets (such as accounts receivable and inventory) and liabilities (such as accounts payable, long-term debt, and asset retirement obligations) not covered by this Subtopic that are included in an asset group shall be adjusted in accordance with other applicable generally accepted accounting principles (GAAP) before testing the asset group for recoverability. Paragraph 350-20-35-31 requires that goodwill be tested for impairment only after the carrying amounts of the other assets of the reporting unit, including the long-lived assets covered by this Subtopic, have been tested for impairment under other applicable accounting guidance.
ASC 350-20
35-31 If goodwill and another asset (or asset group) of a reporting unit are tested for impairment at the same time, the other asset (or asset group) shall be tested for impairment before goodwill. For example, if a significant asset group is to be tested for impairment under the Impairment or Disposal of Long-Lived Assets Subsections of Subtopic 360-10 (thus potentially requiring a goodwill impairment test), the impairment test for the significant asset group would be performed before the goodwill impairment test. If the asset group was impaired, the impairment loss would be recognized prior to goodwill being tested for impairment.
ASC 360-10-35-26 notes that goodwill is only included in an asset group “if the asset group is or includes a reporting unit.” If the asset group only includes part of a reporting unit, an entity would not include goodwill in the carrying amount of the asset group when testing it for impairment.
The guidance on including goodwill in an asset group that is classified as held and used when it is tested for recoverability differs from the guidance in ASC 350-20-40-1 through 40-6 on assigning goodwill to a disposal group that is classified as held for sale. Under ASC 350, goodwill must be assigned to a disposal group that meets the definition of a business in accordance with ASC 805-10. However, for asset groups that are classified as held and used, goodwill may not be included in an asset group if the assets are grouped below the reporting unit level, even if the asset group itself meets the definition of a business. (See Section 2.3.7 for more information about the order for impairment testing when assets are classified as held and used.)
2.3.3 Debt and Other Liabilities in Asset Groups
Debt related to the financing of long-lived assets should generally be excluded from the asset group when it is tested for recoverability. The entity’s financing decisions should not affect the outcome of the recoverability test or the measurement of the fair value of an asset group. Therefore, the lowest level of identifiable cash flows will generally exclude principal and interest payments associated with debt because debt payments are often made at the corporate level or at a level above the asset group. Further, the cash flows associated with debt and interest payments are usually easy to identify and typically can be eliminated from the cash flows used to test the asset group for recoverability.
If debt is related to a specific asset or assets in the asset group, it may be appropriate to include debt in the asset group. If debt is included in the asset group, only the cash outflows related to principal payments should be included in the cash outflows used to test the asset group for recoverability. ASC 360-10-35-29 excludes interest charges that will be recognized as an expense when incurred from the recoverability test to ensure that two entities with essentially the same asset groups and cash flows do not have different results for their recoverability testing solely because of differences in their respective capital structures.
However, the inclusion or exclusion of debt and the related cash flows generally would not result in a different conclusion in the recoverability test. That is, debt with a carrying value of $500 will reduce the carrying amount of the asset group by $500 but would also have related, undiscounted cash outflows of $500.
We believe that the same concept should also be applied to liabilities other than debt. That is, operating liabilities are sometimes included in the asset group because they are viewed as being related to the assets in the group; however, nonoperating or financing liabilities are generally excluded from the carrying amount of the asset group. Regardless of whether a liability is included in or excluded from the asset group, the associated cash flows should be determined consistently. For example, pension obligations are often excluded from the carrying amount of the asset group. If so, in estimating the cash flows of the asset group, an entity should only include as an operating cash outflow the service cost component of the net periodic pension costs, since the other components would be considered similar to financing costs.
2.3.4 Right-of-Use Assets and Lease Liabilities in Asset Groups
ASC 360-10
15-4 The guidance in the Impairment or Disposal of Long-Lived Assets Subsections applies to the following transactions and activities:
- Except as indicated in (b) and the following paragraph, all of the transactions and activities related to recognized long-lived assets of an entity to be held and used or to be disposed of, including
- Right-of-use assets of lessees
- Long-lived assets of lessors subject to operating leases . . . .
ASC 842-20
35-9 A lessee shall determine whether a right-of-use asset is impaired and shall recognize any impairment loss in accordance with Section 360-10-35 on impairment or disposal of long-lived assets.
A lessee must test an ROU asset for impairment in a manner consistent with its treatment of other long-lived assets. In addition to the discussion below, see Section 8.4.4 of Deloitte’s Roadmap Leases for more information about an entity’s testing of ROU assets for impairment after the adoption of ASC 842.
2.3.4.1 Entity Is a Lessee in a Finance Lease
For the reasons described in Section 2.3.3, we believe that a lessee would generally exclude a finance lease liability from the carrying amount of the asset group since that liability is akin to debt. Because the finance lease obligation is excluded from the asset group that includes the finance lease ROU asset, the finance lease payments — both principal and interest — should not reduce the undiscounted expected future cash flows used to test the asset group for recoverability.
Therefore, when performing the recoverability test for an asset group that includes a finance lease ROU asset, a lessee would exclude both (1) the finance lease obligation from the carrying value of the asset group and (2) the related lease payments from the undiscounted expected future cash flows. This approach is consistent with how an entity performs the recoverability test for capital lease assets recognized in accordance with ASC 840.
Further, if the asset group fails to pass the first step of the impairment test, the lessee would also exclude the finance lease obligation from the determination of the fair value of the asset group in the second step.
2.3.4.2 Entity Is a Lessee in an Operating Lease
Two views have emerged regarding how a lessee should determine the carrying value of an asset group in performing the first step of the impairment test for its operating leases:
- View 1 — Exclude the operating lease obligation from the carrying amount of the asset group. The basis for this view is that while the lease is classified as an operating lease, the arrangement is viewed as a financing transaction. Therefore, in a manner consistent with the treatment of the lease obligation for a finance lease, the operating lease obligation and related lease payments would be excluded from the first step of the impairment test. Accordingly, the operating lease payments (both principal and interest) would not reduce the undiscounted expected future cash flows used to test the asset group for recoverability.
- View 2 — Include the operating lease obligation in the carrying amount of the asset group. Because the lease is classified as an operating lease, the related liability is not considered to be a financial liability. Therefore, the operating lease obligation would be included in the determination of the carrying amount of the asset group and the undiscounted expected future cash flows. Accordingly, the operating lease payments should be included as cash outflows in the determination of the undiscounted cash flows for the recoverability test.
In addition, since the total lease expense in an operating lease is presented as a single line item in the income statement, the lease payments include both an interest component and a principal component. As a result, questions have arisen regarding whether the cash outflows related to the operating lease obligation should include only the portion related to principal or that related to both principal and interest (i.e., the full payment). The FASB discussed this topic at its November 30, 2016, meeting. The Board generally agreed that lessees should exclude interest payments from calculations of the undiscounted cash flows in the first step of the impairment test. However, some Board members noted that a lessee’s decision to include interest in its impairment analysis could be viewed as an accounting policy election.
Therefore, under View 2, a lessee can use one of the following two approaches:
- View 2A — Include only the principal component of lease payments as cash outflows in the undiscounted cash flows of the asset group. This view takes into account how the undiscounted cash flows of a typical financial liability would be determined, which would only include the principal component of the payments. Therefore, in a manner consistent with the guidance in ASC 360-10-35-29, a lessee would exclude the interest component of the lease payments from the asset group’s undiscounted cash flows. This is consistent with the Board’s view described above.
- View 2B — Include the total operating lease payments as cash outflows in the undiscounted cash flows of the asset group. According to this view, the lease liability is not considered to be akin to a financial liability; therefore, in a manner similar to the income statement presentation of operating lease expense as a single lease cost, total operating lease payments are included in the undiscounted cash flows of the asset group.
If a lessee is required to perform the second step of the impairment test because the asset group that includes an operating lease ROU asset fails to pass the first step, the lessee should apply the same approach (i.e., maintain consistency regarding the inclusion or exclusion of the lease liability) when calculating the fair value of the asset group in the second step as the approach it used to determine the carrying amount of the asset group in the first step. Therefore, if a lessee in an operating lease excluded the lease liability when performing the first step of the impairment test (i.e., View 1), the lessee should also exclude the lease liability when determining the fair value of the asset group in the second step of the impairment test. Alternatively, if the lessee included both the ROU asset and lease liability when performing the first step of the impairment test (i.e., View 2), the lessee should also include both the ROU asset and lease liability when determining the fair value of the asset group in the second step of the impairment test. Importantly, regardless of whether an entity applied View 2A or 2B above when performing the first step, the total lease payments should be used for the second step of the impairment test because the cash flows used to determine the asset group’s fair value will be discounted.
If the ROU asset related to an operating lease is impaired, the lessee would amortize the remaining ROU asset in accordance with the subsequent-measurement guidance that applies to finance leases — typically, on a straight-line basis over the remaining lease term. Thus, the operating lease would no longer qualify for the straight-line treatment of total lease expense. However, in periods after the impairment, a lessee would continue to present the ROU asset reduction and interest accretion related to the lease liability as a single line item in the income statement.
2.3.5 Deferred Taxes in Asset Groups
While ASC 360-10 does not specify whether an entity should use pretax or post-tax cash flows in its recoverability test, many entities perform the recoverability test on a pretax basis. When the entity performs the test by using pretax cash flows, deferred taxes should not be included in the carrying amount of the asset group. Alternatively, if the entity performs the test by using post-tax cash flows, the deferred taxes related to the asset group should be included in the carrying amount of the asset group. The inclusion or exclusion of deferred taxes and the related cash flows generally would not result in a different conclusion in the recoverability test. That is, a deferred tax liability with a carrying value of $200 will reduce the carrying amount of the asset group by $200 but would be expected to have related, undiscounted cash outflows of $200.
In certain instances, tax amounts are directly related to the assets in the asset group. For example, an entity may invest in projects that receive tax incentives in the form of tax credits (e.g., affordable housing projects, projects that produce energy or fuel from alternative, nonconventional sources). The tax aspects of the asset change the economics of the decision to invest in and operate the asset. In these instances, if the entity expects to use the tax credits in its return, it may include the incremental cash flows from the tax credits in the cash flow projection when assessing an asset’s recoverability and measuring any impairment. Note that if the entity includes the tax aspects of a transaction in determining the cash flows, it must ensure that it is not recognizing the tax amounts twice in its cash flow determinations.
2.3.6 Foreign Asset Groups and Accumulated Other Comprehensive Income, Including Foreign Currency Translation, in Asset Groups
ASC 830-30
45-13 An entity that has committed to a plan that will cause the cumulative translation adjustment for an equity method investment or a consolidated investment in a foreign entity to be reclassified to earnings shall include the cumulative translation adjustment as part of the carrying amount of the investment when evaluating that investment for impairment. The scope of this guidance includes an investment in a foreign entity that is either consolidated by the reporting entity or accounted for by the reporting entity using the equity method. This guidance does not address either of the following:
- Whether the cumulative translation adjustment shall be included in the carrying amount of the investment when assessing impairment for an investment in a foreign entity when the reporting entity does not plan to dispose of the investment (that is, the investment or related consolidated assets are held for use)
- Planned transactions involving foreign investments that, when consummated, will not cause a reclassification of some amount of the cumulative translation adjustment.
45-14 In both cases, paragraph 830-30-40-1 is clear that no basis exists to include the cumulative translation adjustment in an impairment assessment if that assessment does not contemplate a planned sale or liquidation that will cause reclassification of some amount of the cumulative translation adjustment. (If the reclassification will be a partial amount of the cumulative translation adjustment, this guidance contemplates only the cumulative translation adjustment amount subject to reclassification pursuant to paragraphs 830-30-40-2 through 40-4.)
45-15 An entity shall include the portion of the cumulative translation adjustment that represents a gain or loss from an effective hedge of the net investment in a foreign operation as part of the carrying amount of the investment when evaluating that investment for impairment.
An entity performs the recoverability test in its functional currency even if the asset group’s books of record are not maintained in the entity’s functional currency (e.g., a foreign subsidiary whose local currency is not the entity’s functional currency). Such circ*mstances could result in a functional-currency impairment or the reversal of a local-currency impairment.
ASC 830-30-45-13 states that “[a]n entity that has committed to a plan that will cause the cumulative translation adjustment [CTA] for an equity method investment or a consolidated investment in a foreign entity to be reclassified to earnings shall include the [CTA] as part of the carrying amount of the investment when evaluating that investment for impairment.” Therefore, an entity should not include the CTA balance in the asset group when testing it for recoverability on a held-and-used basis. (See Section 3.4.2 for more information about including accumulated other comprehensive income [AOCI] in the disposal group when the assets are held for sale.)
Although ASC 830-30-45-13 addresses foreign CTAs, there is no specific U.S. GAAP guidance on how an entity should treat other items included in AOCI (e.g., unrealized holding gains and losses on available-for-sale debt securities, gains and losses related to postretirement benefits) when evaluating an asset group for impairment. We believe that it is appropriate to analogize to the guidance in ASC 830-30-45-13 for all items of AOCI.
For more information about testing a foreign entity for impairment and the reclassification of the CTA out of equity, see Section 5.5 of Deloitte’s Roadmap Foreign Currency Matters.
2.3.7 Order of Impairment Testing When an Asset Group Is Held and Used
ASC 360-10
35-27 Other than goodwill, the carrying amounts of any assets (such as accounts receivable and inventory) and liabilities (such as accounts payable, long-term debt, and asset retirement obligations) not covered by this Subtopic that are included in an asset group shall be adjusted in accordance with other applicable generally accepted accounting principles (GAAP) before testing the asset group for recoverability. Paragraph 350-20-35-31 requires that goodwill be tested for impairment only after the carrying amounts of the other assets of the reporting unit, including the long-lived assets covered by this Subtopic, have been tested for impairment under other applicable accounting guidance.
As indicated in Section 2.3, an asset group may include not only long-lived assets that are within the scope of ASC 360-10 but also other assets such as receivables, inventory, indefinite-lived intangible assets, or goodwill. When assets other than long-lived assets are present within an asset group, an entity needs to follow a required order when testing the assets in the asset group for impairment. The following flowchart illustrates the order in which an entity is required to test assets for impairment when an asset group is classified as held and used:
This order ensures that the carrying amounts of any impaired assets are adjusted before the carrying amount of the asset group is determined. That is, it ensures that any impairments for assets that are tested for impairment individually or at smaller units of account (e.g., receivables, inventory, or indefinite-lived intangible assets) are recognized before assets that are tested by using a larger unit of account. Therefore, an entity should adjust the carrying amount of each asset, if necessary, before performing the next impairment test. Further, ASU 2016-20 includes a technical correction that amends ASC 340-40 to clarify that the order in which assets should be tested for impairment is as follows: (1) assets outside the scope of ASC 340-40 (e.g., inventory under ASC 330), (2) assets accounted for under ASC 340-40, and (3) reporting units and asset groups under ASC 350 and ASC 360.
An entity would be expected to routinely assess for impairment, under applicable GAAP, the assets that would be tested first (i.e., the assets that are outside the scope of ASC 360-10 other than goodwill), regardless of whether a triggering event occurs for the asset group. The fact that these assets are part of an asset group does not change the process for testing them for impairment.
As described further in Section 2.3.2, goodwill is only included in an asset group “if the asset group is or includes a reporting unit” in accordance with ASC 350-20-35-31. However, even if goodwill is not assigned to an asset group, an entity should consider whether the existence of an impairment indicator for one or more of its asset groups may suggest that goodwill is also impaired.
Connecting the Dots
In March 2021, the FASB issued ASU 2021-03, which allows private companies and NFPs to use an accounting alternative for performing the goodwill impairment triggering event evaluation. Specifically, the ASU gives a private company or NFP the option of performing the goodwill impairment triggering event evaluation required by ASC 350-20, as well as any resulting goodwill impairment test, as of the end of the entity’s interim or annual reporting period, as applicable.
The alternative provided by the ASU applies only to monitoring goodwill for impairment triggering events; it does not change existing requirements for private companies and NFPs to monitor their long-lived assets and other assets for triggering events, and perform any required impairment tests, during the reporting period. As a result, a private company or NFP that has adopted ASU 2021-03 would not assess goodwill for triggering events until the end of its next reporting period.
The entity should keep in mind that the required order for testing long-lived assets and goodwill when an asset group is classified as held and used differs from that when a disposal group is classified as held for sale (see Section 3.5.1).
Connecting the Dots
The following is a list of assets that would be tested for impairment before the asset group is tested:
- Accounts receivable (see ASC 310 and ASC 326).
- Inventory (see ASC 330-10-35).
- Intangible assets not being amortized that are to be held and used (i.e., indefinite-lived intangible assets) (see ASC 350-30-35).
- Internal-use software (see ASC 350-40-35).
- Servicing assets (see ASC 860-50-35).
- Loans (see ASC 310-10-35).
- Debt securities accounted for at fair market value, other than a temporary decline in the value of financial instruments accounted for at fair market value (see ASC 320-10-35).
- Equity securities, not recorded at fair value, without readily determinable fair values (see ASC 321-10-35).
- Equity method investments (see ASC 323-10-35).
- Mortgage banking assets (see ASC 948-310-35).
- Deferred policy acquisition costs (see ASC 944-60-25).
- Deferred tax assets (see ASC 740-10-30).
- Unproved oil and gas properties (see ASC 932-360-35).
- Entertainment — broadcasters’ assets (see ASC 920-350-35).
- Entertainment — cable television intangible assets not depreciated (see ASC 922-350-35).
- Entertainment — films (see ASC 926-20-35).
- Entertainment — music (see ASC 928-340-35).
- Costs of computer software to be sold, leased, or otherwise marketed (see ASC 985-20-35).
- Rate-regulated assets and regulated assets (see ASC 980).
- Sales-type, direct financing, and leveraged leases (see ASC 842 and ASC 326).
- Sale-leaseback transactions (see ASC 842 and ASC 326).
2.3.8 Changes in Asset-Group Determinations
Changes in asset-group determinations should be accounted for prospectively in a manner similar to changes in estimate. Changes in asset-group determinations might result when an entity undergoes a significant change in its operating or reporting structure, has a significant acquisition or disposition, or significantly changes the way in which it uses or deploys its assets.
