4.7 Determining the Carrying Amount of an Intangible Asset When That Asset Is Removed From Its Unit of Account
ASC 350-30-35-21 states that “[s]eparately recorded indefinite-lived intangible
assets, whether acquired or internally developed, shall be combined into a single
unit of accounting for purposes of testing impairment if they are operated as a
single asset and, as such, are essentially inseparable from one another.” An
indefinite-lived intangible asset may need to be removed from a single unit of
account if that intangible asset is sold separately from the unit of account, the
unit of account is reconsidered (such as in connection with a larger reorganization
of the entity), or the entity concludes that the indefinite-lived intangible asset
is now finite-lived.
An entity should determine the carrying amount of an intangible asset that was
removed from a unit of account under ASC 350-30-35-21 through 35-28 on the basis of
the historical carrying amount of the intangible asset when it was placed into the
unit of account less the intangible asset’s allocation of any impairments
subsequently recognized. Indefinite-lived assets are combined into a unit of account
solely for impairment testing; each individually recorded intangible asset does not
cease to exist as a separately recorded asset as a result of the combination.
Subsequent impairment losses should be allocated to the intangible assets within the
unit of account on a pro rata basis by using the relative historical carrying
amounts of the individual intangible assets. This approach is consistent with the
guidance in ASC 360-10-35-28 regarding the allocation of impairment losses within an
asset group.
Entities should consider the guidance in ASC 350-30-35-24(b), which states that “[a]
past practice of selling similar assets separately is evidence indicating that
combining assets as a single unit of accounting may not be appropriate.” While a
past practice is only one of the indicators listed in ASC 350-30-35-24, entities
that dispose of an intangible asset or assets within a unit of account must be able
to support their conclusions both historically and prospectively in accordance with
the other indicators in ASC 350-30-35-24.
The examples below illustrate the general principles described above.
Example 4-6
Company A holds three perpetual easements grouped into a unit
of account for impairment testing. Easements 1 and 2 were
acquired as part of a single transaction for consideration
of $100 (a carrying amount was not separately assigned to
each easement at the time of the acquisition). Easement 3
was acquired separately for consideration of $150. No
impairment of the carrying amount of the unit of account has
subsequently been recognized.
Easement 3 is disposed of in connection with the sale of the
underlying property to which the easement is related. The
carrying amount of the easement disposed of (Easement 3)
would be determined on the basis of the readily available
historical carrying amount of that easement ($150).
Example 4-7
Assume the same facts as in Example 4-6 except that the historical
carrying amount of the easement disposed of (Easement 1) is
not readily available since no separate assignment of a
carrying amount to each easement was made at the time of the
acquisition. In the absence of a readily available
historical carrying amount, A should develop a reasonable
and supportable method to determine the historical carrying
amount on the basis of the best evidence of the facts and
circumstances existing at the time of the easement's
acquisition.
Example 4-8
Assume the same facts as in Example 4-6 except that, after the
acquisition of the three easements, an impairment of $50 was
recognized for the unit of account.
Easement 3 was disposed of in connection with the sale of the
underlying property to which the easement is related. The
carrying amount of the easement disposed of (Easement 3)
would be determined on the basis of the readily available
historical carrying amount of that easement ($150) net of
the effect of the subsequent impairment of the unit of
account. The impairment loss should be allocated to the
intangible assets of the unit of account on a pro rata basis
by using the relative historical carrying amount of those
assets, which is consistent with ASC 360-10-35-28. The
impairment loss allocable to Easement 3 would equal 60
percent ($150 divided by $250) of the total impairment loss
of $50, or $30, resulting in a historical carrying amount of
Easement 3 that is equal to $120 ($150 less $30).