ASC 360

Definition

ASC 360, also known as Accounting Standards Codification Topic 360, addresses the accounting for property, plant, and equipment (PPE) and intangible assets. This standard provides guidelines on how to recognize, measure, and report these assets and their associated costs, including impairment assessments and depreciation methods. Understanding ASC 360 is crucial for distinguishing the differences in asset reporting between US GAAP and IFRS, particularly in how they approach impairment and disposal of long-lived assets.

5 Must Know Facts For Your Next Test

1. ASC 360 outlines the criteria for determining when an asset should be classified as impaired, which requires testing if the carrying amount exceeds the sum of undiscounted cash flows expected from the use and eventual disposal of the asset.
2. The standard allows for different depreciation methods, including straight-line and declining balance, giving companies flexibility in how they allocate asset costs over time.
3. When a long-lived asset is disposed of or sold, ASC 360 requires companies to remove both the asset and its associated accumulated depreciation from the balance sheet.
4. In contrast to IFRS, ASC 360 generally requires a two-step impairment test for long-lived assets, making it essential to understand how this can impact financial reporting.
5. Changes in estimates related to useful lives or residual values of assets must be accounted for prospectively under ASC 360, affecting future depreciation calculations.

Review Questions

• How does ASC 360 define impairment and what process is required to assess it?
  • ASC 360 defines impairment as a situation where the carrying amount of a long-lived asset exceeds its recoverable amount. To assess impairment, entities must first estimate the undiscounted cash flows expected from the use and eventual disposal of the asset. If these cash flows are less than the carrying amount, an impairment loss is recognized, and the asset is written down to its fair value.
• Compare ASC 360's treatment of depreciation with that of IFRS standards. What are the key differences?
  • ASC 360 provides flexibility in choosing various depreciation methods such as straight-line or declining balance, similar to IFRS standards. However, a notable difference lies in how impairment is treated; ASC 360 mandates a two-step impairment test which may not be required under IFRS. Additionally, IFRS may allow for revaluation models that ASC does not permit under US GAAP.
• Evaluate the implications of ASC 360's rules on disposals of long-lived assets for financial statements and investor perceptions.
  • The rules outlined in ASC 360 regarding disposals require that both the asset and accumulated depreciation be removed from the financial statements upon sale or disposal. This can significantly impact reported earnings during periods when such transactions occur, potentially affecting investors' perceptions of a company's performance. Properly managing these disposals and understanding their implications can influence key metrics such as return on assets (ROA) and net income, making it crucial for financial analysis.

Related terms

Impairment: A reduction in the carrying amount of a long-lived asset below its recoverable amount, requiring recognition of an impairment loss in financial statements.

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

IFRS 16:

An International Financial Reporting Standard that governs lease accounting, providing a different approach compared to ASC 360 in terms of asset recognition.