3.6 Subsequent Measurement While a Disposal Group Is Classified as Held for Sale
ASC 360-10
35-40 A loss shall be recognized for any initial or subsequent write-down to fair value less cost to sell. A gain shall be recognized for any subsequent increase in fair value less cost to sell, but not in excess of the cumulative loss previously recognized (for a write-down to fair value less cost to sell). The loss or gain shall adjust only the carrying amount of a long-lived asset, whether classified as held for sale individually or as part of a disposal group.
The fair value less costs to sell of a disposal group must be reassessed in each
reporting period in which it is classified as held for sale. In accordance with ASC
360-10-35-40, “[a] loss shall be recognized for any initial or subsequent write-down
to fair value less cost to sell” while “[a] gain shall be recognized for any
subsequent increase in fair value less cost to sell, but not in excess of the
cumulative loss previously recognized (for a write-down to fair value less cost to
sell).”
Example 3-5
On January 31, 20X8, Company T announces a plan to move to a new corporate headquarters. According to the plan, T expects to vacate and sell the company-owned office building that currently houses its corporate headquarters. On April 30, 20X8, T completes the move and has met the criteria to classify the property as held for sale. As of that date, the carrying value of the property is $21 million and T estimates that the fair value less cost to sell is $16 million (including $1 million in estimated sale costs). Accordingly, T recognizes a loss of $5 million.
As of December 31, 20X8, T had not yet sold the property; however, because of
improved conditions in the real estate market, T
estimates that the fair value less costs to sell
of the property is $18 million. Therefore, in its
December 31, 20X8, financial statements, T
recognizes a gain of $2 million because the
increase is less than the cumulative loss
previously recognized.
3.6.1 Depreciation and Amortization
Long-lived assets to be sold will be recovered through sale and not through future operations. Therefore, long-lived assets are not depreciated or amortized once they are classified as held for sale in accordance with ASC 360-10-35-43. Although an entity may still be using the assets and obtaining benefits from their use, the FASB concluded, as noted in FASB Statement 144, that continuing to depreciate or amortize them is “inconsistent with the use of a lower of carrying amount or fair value measure for a long-lived asset classified as held for sale.”
In addition, because ROU assets are within the scope of ASC
360-10, we believe that the guidance in ASC 360-10-35-43
applies to ROU assets included in a disposal group.
Therefore, entities should cease amortization of any ROU
assets once the disposal group meets the held-for-sale
criteria, just as they would for any other asset within the
scope of ASC 360-10, even though the interest on any related
lease liabilities should continue to be accreted in
accordance with ASC 842.