Depreciation is an accounting method to reduce the value of a business asset due to age and usage.
There are different approaches that you can use when depreciating an asset. This includes the straight-line method or the accelerated method. However, these methods are not always in line with the fair value of an asset.
This is where ASC 360 steps in to help. ASC 360 is an accounting standard that guides businesses on what to do when the carrying value of property, plant, or equipment is not equal to its fair value at that time. It’s important to understand this standard to ensure that your business is always accurate and compliant.
Want to learn more about ASC 360? Read this helpful guide on everything you need to know.
What is ASC 360?
ASC 360 is an accounting standard that dates back to 2001. This accounting standard was introduced by the Financial Accounting Standards Board (FASB) in the United States. Topic 360 relates to the accounting principles that should be followed when reporting on property, plant, and equipment.
To be more specific, Topic 360 includes guidelines on how to account for long-lived assets such as buildings, equipment, or land. This standard outlines what businesses should do when it comes to the acquisition, depreciation, impairment, and disposal of these assets.
It’s important for businesses to understand ASC 360. This is because ASC 360 forms part of the Generally Accepted Accounting Principles (GAAP) for all American businesses and entities. This means that all private businesses, public companies, and government entities need to abide by these regulations.
What Are the Entities That Must Comply With ASC 360?
As mentioned above, ASC 360 is a standard that has been established by the Financial Accounting Standards Board (FASB) in the United States. This means that the standard forms part of the Generally Accepted Accounting Principles (GAAP) in the US. Any company or entity that follows the GAAP principles will need to abide by ASC 360 to be compliant.
In simple terms, this means that all public companies, private companies, government entities, non-profit companies, and registered public benefit organizations must abide by ASC 360.
The specific requirements of ASC 360 vary from entity to entity depending on the nature of the assets that they hold. However, all entities that abide by GAAP should prioritize ASC 360 compliance.
What Are the ASC 360 Disclosure Requirements?
There are a few disclosure requirements that you should know about when it comes to ASC 360. Here’s a brief overview of the disclosure requirements.
- Assumptions used in determining fair value
- Reconciliation of the beginning and ending balances of assets
- Capital expenditure incurred during the period
- Impairment of the assets during the period
- Depreciation method used
- Information on any leases of assets
What Are Fixed Asset Groups Under ASC 360?
Under ASC 360, fixed asset groups are assets that share common characteristics.
These long-lived assets are grouped together to help measure impairment more effectively.
What’s an Impairment Under ASC 360?
Impairment occurs when the current fair value of an asset is different from the carrying value. As you depreciate your asset, it’s not always in line with how current market conditions are behaving. Sudden changes in the market could end up making your assets worth less than you have them recorded in your books.
Testing for impairment is a key part of ASC 360. These tests simply look at the fair value of a particular asset so that it can be compared to the carrying value. The difference in prices is known as impairment.
This figure should then be used to adjust the carrying value. Adjusting the carrying value is important to make sure that your books are always accurate. This is even more important if you plan to sell the asset.
What Are the Indicators of Impairment?
There are a few indicators of impairments. This includes a significant decrease in the market value of an asset, an adverse change in legal factors, or the accumulation of costs that exceed the acquisition cost of the asset.
How Do ASC 360 Provisions Compare and Contrast With International Financial Reporting Standards (IAS 36)?
ASC 360 differs from IAS 36 in two key ways. The first is that ASC 360 is for long-lived assets, while IAS 36 is for all assets.
Additionally, ASC 360 provides specific guidance on calculating and adjusting for impairments.
What Are the Requirements for Historical Cost Accounting and Fair Value Determination Under ASC 360?
Under ASC 360, all assets are to be recorded at historical cost. The carrying value of the asset is then calculated by taking the historical cost and subtracting the accumulated depreciation.
What Are the Asset Retirement Obligations?
Asset Retirement Obligations (AROs) are obligations that are associated with the retirement of a long-lived asset. This can be done through acquisition, construction, or normal operation of that asset.
The ARO should be recognized as a liability for the period in which it was measured for its fair value. The liability can be adjusted over time to reflect changes in cash flow. This will help you calculate an accurate present value for the asset.
What Are the Asset Depreciation Methods Established by ASC 360?
ASC 360 outlines methods that businesses can use to depreciate assets. Here’s a brief look at these methods.
1. Straight-Line Depreciation
This method spreads the cost of an asset over a fixed period of time. This means that you deprecate the asset an equal amount every year.
2. Accelerated Depreciation
Accelerated depreciation recognizes more depreciation in the first few years of the asset’s life. The deprecation rate then decreases for the rest of the asset’s lifespan.
3. Units-of-Production Depreciation
This method calculates depreciation based on the output of an asset. This means that the more you use the asset, the faster it will depreciate.
4. Group Depreciation
This method groups similar assets together and calculates the depreciation of all of them. This is often used for assets that are identical or have similar depreciation patterns.
How to Group Assets Held for Use for Impairment Analysis
Under ASC 360, assets held for use can be grouped together for impairment analysis if they are expected to bring in income in the future. Their use and maintenance should also be held separately.
The first thing that businesses should do is identify the assets that they want to group. They can then determine the primary asset for each group. After this is done, you can test for impairment on a group level.
Once you test for impairment, you can allocate the impairment loss to each of the assets in the group.
How to Group Assets Held for Sale for Impairment Analysis
Assets can be grouped for sale if you plan to sell them in a single transaction. The process begins with identifying the assets that are held before testing for impairment at a group level. You can then calculate and allocate the impairment loss to each asset within the group.
How to Measure Impairment Loss and Recognize It
ASC 360 impairment testing is the first step to measure the total impairment loss for a business. This test includes looking at changes in circumstances that would have an impact on the value of an asset.
The next step is to find the fair value of the asset. This includes asset appraisals, discounted cash flow, and comparable sales. Once you have these two figures, you can calculate the total impairment loss.
The next step is to record the impairment loss and adjust the carrying value of the asset. This is a simple adjustment and will ensure that the adjusted amount becomes the new cost basis going forward.
How to Allocate Impairment Losses to an Asset Group
When it comes to asset groups, allocating impairment losses is very similar. The first thing that you need to do is identify the asset group. You can then determine the carrying value of that group of assets.
Next, you can use the method mentioned above to calculate the fair value of the group of assets. You can follow the same procedure to calculate the impairment loss of the asset group.
Allocating impairment loss can be done on a pro-rata basis. This is based on the carrying value of each asset within the group.
Get ASC 360 Compliance with CPCON
ASC 360 offers guidelines on how to address financial reporting for the impairment of property, plants, and equipment. This outlines tests that you can do to report on the impairment of long-lived assets.
Businesses must have a comprehensive understanding of ASC 360 requirements to ensure compliance and maximize the benefits that come with this standard. If your organization is struggling to navigate the complexities of ASC 360, CPCON is the perfect partner.
Our team of experts has extensive experience in cost accounting and can guide you through the process to maximize value for your organization. Contact us today to learn more.