ASC 360

Definition

ASC 360 refers to the Accounting Standards Codification Topic 360, which deals with property, plant, and equipment (PP&E) and the criteria for their classification, recognition, and measurement. This standard outlines how to evaluate whether long-lived assets should be classified as held-for-sale and establishes the accounting treatment for assets that meet these criteria, impacting financial reporting and decision-making.

5 Must Know Facts For Your Next Test

1. For an asset to be classified as held-for-sale under ASC 360, it must be available for immediate sale in its current condition and the sale must be highly probable.
2. Once classified as held-for-sale, an asset is measured at the lower of its carrying amount or fair value less costs to sell.
3. Assets that are held-for-sale are not depreciated while they are classified under this status.
4. If an asset is deemed impaired before it is sold, the impairment loss must be recognized in the financial statements prior to its classification as held-for-sale.
5. ASC 360 also requires disclosures about held-for-sale assets in the notes to the financial statements, enhancing transparency for users.

Review Questions

• What criteria must an asset meet to be classified as held-for-sale under ASC 360, and how does this impact its financial reporting?
  • To be classified as held-for-sale under ASC 360, an asset must be available for immediate sale in its current condition and the sale must be highly probable, typically supported by a commitment from management or an active marketing plan. This classification impacts financial reporting by requiring the asset to be measured at the lower of its carrying amount or fair value less costs to sell, which may result in adjustments to the income statement and balance sheet. Additionally, these assets are no longer depreciated while they remain classified as held-for-sale.
• Discuss how impairment assessments are related to the classification of assets as held-for-sale according to ASC 360.
  • Impairment assessments are closely related to the classification of assets as held-for-sale under ASC 360. Before classifying an asset as held-for-sale, companies must evaluate if it is impaired—meaning its market value has fallen below its carrying amount. If impairment is identified, a loss must be recognized in the financial statements prior to classifying it as held-for-sale. This ensures that financial statements accurately reflect the true value of assets and provide transparency regarding potential losses to investors and stakeholders.
• Evaluate how proper adherence to ASC 360 can affect a company's strategic decision-making regarding asset disposal.
  • Adhering to ASC 360 is crucial for a company's strategic decision-making related to asset disposal because it provides a clear framework for evaluating when an asset should be sold and how it should be reported. Accurate classification and measurement of assets as held-for-sale not only influence financial results but also inform management about the potential financial impact of disposing of assets. By understanding impairment losses and depreciation implications, companies can make informed decisions on whether to hold or sell assets based on their current and future economic benefits, ultimately supporting effective resource allocation and capital management strategies.

Related terms

Held-for-Sale: Assets that are available for immediate sale in their current condition and whose sale is highly probable within one year.

Impairment: A reduction in the carrying amount of a long-lived asset when its market value falls below its book value, requiring recognition in the financial statements.

Depreciation: The systematic allocation of the cost of a tangible asset over its useful life, reflecting wear and tear or obsolescence.