Under ASC 360-10-35 an asset group is tested when a triggering event occurs: if the undiscounted cash flows from use and disposal are below the carrying amount, the impairment loss is the excess of the carrying amount over fair value, the adjusted amount becomes the new cost basis, and the loss is never reversed. Tax basis does not change.
Impairment is tested when something happens, not on a schedule.
Long-lived assets held and used are tested for impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable (ASC 360-10-35-21): a significant decrease in market price, a significant change in the way an asset is used or its physical condition, an adverse change in legal factors or the business climate, costs well above what was expected to build or acquire it, an operating or cash flow loss combined with a history or forecast of losses, or an expectation that the asset will be sold or otherwise disposed of well before the end of its life. The test is applied to the asset group, the lowest level at which identifiable cash flows are largely independent of other assets.
Recoverability first, then measurement.
The recoverability test compares the carrying amount of the asset group with the sum of the undiscounted cash flows expected from its use and eventual disposal. If the undiscounted cash flows exceed the carrying amount, there is no impairment, whatever fair value is. If they do not, the impairment loss is the excess of the carrying amount over fair value, which is a discounted or market measure. The loss is recognised in the income statement, allocated to the long-lived assets of the group pro rata by carrying amount (not below their individual fair values), the adjusted carrying amount becomes the new cost basis, and it is depreciated over the remaining useful life. An impairment loss is never reversed under US GAAP (ASC 360-10-35-20).
| Step | Test | Amount | Result |
|---|---|---|---|
| 1. Trigger | A significant decline in the market for the line the plant produces; the plant is the lowest level with identifiable cash flows (the asset group) | Test required | |
| 2. Recoverability | Carrying amount of the asset group | 1,200,000.00 | |
| Sum of undiscounted future cash flows from use and eventual disposal | 950,000.00 | Not recoverable; measure the loss | |
| 3. Measurement | Fair value of the asset group | 700,000.00 | |
| Impairment loss, carrying amount less fair value | 500,000.00 | Recognised; new cost basis 700,000.00 |
Tax does not follow.
An impairment is a book event. The federal basis of the asset is unchanged, its MACRS schedule continues, and a new temporary difference arises, which the deferred tax article describes. In the register the impairment is recorded on the book basis only: an override of the carrying amount with the date, the amount, the reason and the approval, and a revised remaining life if the review changed it. The audit trail of that override is the evidence the auditor asks for, together with the cash flow analysis and the fair value support.
| When | User | Record | Field | Before | After | Reason |
|---|---|---|---|---|---|---|
| 30 Sep 2026 16:41 | M. Reyes | Period | Period 9 | Open | Depreciation posted | Mass recalculation, 1,203 assets |
| 12 Sep 2026 14:02 | M. Reyes | 10577 | Status | In service | Disposed, sale | Replaced by unit 9 |
| 12 Sep 2026 13:55 | M. Reyes | CIP-0155 | Status | In progress | Capitalised as 10744 | Dock doors in service |
| 10 Sep 2026 09:18 | J. Okafor | 10412 | Federal convention | Half-year | Half-year (re-tested) | 40% rule check, Q3 |
| 03 Sep 2026 11:30 | Import | 27 assets | Created | From AP export 88213 to 88266 | Additions queue approved by J. Okafor | |
| 29 Aug 2026 15:07 | K. Lindqvist | 10240 | Cost | 9,600.00 | 9,840.00 | Freight added, invoice 88266 |
What to record on the asset.
- The triggering event and its date.
- The asset group and the assets in it, because the loss is allocated across them.
- The undiscounted cash flows and the fair value, with their support, in the file.
- The override to the book carrying amount, with the reason and the approval, and the revised remaining life.
- No change to the tax books, and the new book-tax difference.
In Fixed Asset Desk: an impairment is an override to the book basis with the user, date, prior value and reason kept on the audit trail; the other books are untouched.
Sources: FASB ASC 360-10-35-17 to 35-36 (impairment of long-lived assets to be held and used); FASB ASC 820 (fair value measurement). Checked 20 September 2026.