ASC 360 Held-for-Sale Classification and Measurement

What best describes the entity's current plan for the long-lived asset or disposal group?

ASC 360-10 distinguishes assets to be disposed of by sale from assets to be disposed of by abandonment, in-kind exchange, or distribution to owners. Only a disposal by sale can qualify for held-for-sale classification, the depreciation stop, and the lower-of measurement that comes with it. Pin down the disposal method before testing the six criteria; a plan to scrap an asset for salvage proceeds is still a sale.

Held-for-sale classification is not available; the asset continues to be classified as held and used until it is disposed of (ASC 360-10-45-15).

Official guidance: FASB Accounting Standards Codification

Has management with the authority to approve the action committed to a plan to sell, and is the asset available for immediate sale in its present condition?

Criteria (a) and (b) of ASC 360-10-45-9 require a genuine, approved commitment and an asset that could close today on customary terms. The common trap is classifying too early: a plan that still needs shareholder or regulatory board approval, or an asset the seller must keep operating to fill remaining customer orders, is not yet available for immediate sale in its present condition.

The held-for-sale criteria in ASC 360-10-45-9 are not all met; the asset remains classified as held and used.

Official guidance: FASB Accounting Standards Codification

Has an active program to locate a buyer begun, and is the asset being actively marketed at a price that is reasonable in relation to its current fair value?

Criteria (c) and (e) of ASC 360-10-45-9 test observable selling effort. Persuasive evidence includes broker engagement letters, listing agreements, marketing materials, a data room, and a pricing analysis tying the asking price to current fair value. An asking price materially above fair value indicates the entity may be unwilling to transact and defeats classification even where a formal plan exists.

Without an active buyer search and marketing at a reasonable price, the ASC 360-10-45-9 criteria are not met; the asset remains held and used.

Official guidance: FASB Accounting Standards Codification

Is the sale probable, with transfer expected to qualify as a completed sale within one year of classification?

Criterion (d) of ASC 360-10-45-9 requires a probable, completed sale within one year of classification, and criterion (f) requires that significant changes to the plan or its withdrawal be unlikely. ASC 360-10-45-11 provides a narrow exception when the delay is caused by events or circumstances beyond the entity's control; the illustrative situations in ASC 360-10-55 involve buyer-imposed or regulatory conditions that the seller is actively working to satisfy while continuing to market the asset at a reasonable price.

A probable completed sale within one year cannot be demonstrated and no exception applies; the asset remains classified as held and used (ASC 360-10-45-9(d)).

Official guidance: FASB Accounting Standards Codification

At the classification date, and at each subsequent reporting date, how does the carrying amount compare with fair value less costs to sell?

ASC 360-10-35-43 measures a held-for-sale asset or disposal group at the lower of its carrying amount and fair value less costs to sell, and prohibits depreciation or amortization while the classification holds. Costs to sell are the incremental direct costs to transact the sale, such as broker commissions, legal fees, and closing costs, and are discounted to present value when the sale is expected to occur beyond one year. Interest and other expenses attributable to the liabilities of a disposal group continue to be accrued. Assets in the group outside ASC 360 scope, such as inventory and receivables, are measured under their own guidance before the lower-of test is applied.

Consult ASC 360-10-35 directly for the held-for-sale measurement sequence before recording a write-down or recovery.

Official guidance: FASB Accounting Standards Codification

• FASB Accounting Standards Codification

Does the disposal represent a strategic shift that has, or will have, a major effect on the entity's operations and financial results?

ASC 205-20-45-1B limits discontinued operations to disposals of a component, or group of components, that represent a strategic shift with a major effect on the entity's operations and financial results. Assess 'major' both quantitatively - the component's share of consolidated revenue, assets, and pretax earnings - and qualitatively. A disposal group can be held for sale without being a discontinued operation; the two conclusions are separate and each needs its own documentation.

The disposal group is held for sale and is reported in discontinued operations (ASC 205-20-45-1B). The asset or disposal group is held for sale, with results remaining in continuing operations (ASC 360-10-35-43; ASC 360-10-45-14).

Official guidance: FASB Accounting Standards Codification

What has changed since the asset or disposal group was classified as held for sale?

Held-for-sale classification is reassessed every reporting period, not just at inception. ASC 360-10-45-10 requires reclassification to held and used whenever the ASC 360-10-45-9 criteria stop being met, except where the one-year exception in ASC 360-10-45-11 applies. Document the reassessment even in periods where nothing changed; auditors will ask how the entity concluded the plan remains on track and the one-year clock is being respected.

Reclassify the asset or disposal group as held and used, measured under ASC 360-10-35-44, with the adjustment reported in continuing operations in the period of the decision. The ASC 360-10-45-9 criteria are no longer met and no exception applies; reclassify as held and used under ASC 360-10-35-44 (ASC 360-10-45-10).

Official guidance: FASB Accounting Standards Codification