Chapter 4 — Criteria for Reporting a Discontinued Operation

4.5 Other Nonreciprocal Transfers Other Than Spin-Offs

While other nonreciprocal transfers of long-lived assets (e.g., split-offs, dividends-in-kind, common-control transfers, or donations) are not specifically addressed in U.S. GAAP, we believe that such transfers are also disposals other than by sale, regardless of whether they are measured at historical cost or fair value in the transferring entity’s books. Thus, we believe that, by analogy to the guidance in ASC 845-10-30-10, the assets being distributed in a nonreciprocal exchange should remain classified as held and used until the distribution occurs.

4.5.1 Common-Control Transactions

As discussed in Appendix B.4.3 of Deloitte’s Roadmap Business Combinations, the transferring entity typically accounts for the transfer of assets in a common-control transaction as a disposition in accordance with ASC 360-10. We believe that, while not specifically addressed in the guidance, the net assets to be disposed of in a common-control transaction should be classified as held and used until they are exchanged or distributed in the same manner as net assets to be distributed in a spin-off. Therefore, the net assets to be transferred in a common-control transaction should be considered disposed of “other than by sale” and should not be classified as held for sale in the periods before they are exchanged or distributed, even if the transferring entity will receive consideration as part of the exchange.

ASC 360-10-40-4 requires that a spinnor recognize an impairment loss on the date on which long-lived assets are distributed in a spin-off if the carrying amount of the assets (disposal group) exceeds their fair value. While a common-control transaction is accounted for as a disposal other than by sale in the same manner as a spin-off transaction, we do not believe that the transferring entity is required to recognize an impairment loss if the carrying amount of the assets to be distributed in a common-control transaction exceeds their fair value. Rather, we believe that the FASB intended for the guidance in ASC 360-10-40-4 to address the impairment guidance in ASC 845-10-30-10 explicitly referring to a distribution to owners in a spin-off transaction and that this guidance should not be extended to transfers of assets under common control of the same parent.

However, ASC 360-10-35-21 requires that an entity test a long-lived asset (asset group) classified as held and used for impairment whenever “events or changes in circumstances indicate that its carrying amount may not be recoverable.” Therefore, the transferring entity should consider whether the common-control transaction indicates that the long-lived assets (asset group) to be transferred should be tested for impairment under the held-and-used model before the disposal date. ASC 360-10-40-4 clarifies that even if the entity intends to distribute assets in a spin-off transaction, the assets should be tested for recoverability, if necessary, as if they are held and used, and the estimates of future cash flows used in the recoverability test should be based on the use of the assets for their remaining useful life, provided that the disposal transaction will not occur. We believe that the same approach should be applied to assets to be distributed in a common-control transaction if the transferring entity determines that a triggering event has occurred and that the assets should be tested for recoverability before they are transferred.

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This publication provides comprehensive guidance; however, it does not address all possible fact patterns, and the guidance is subject to change. Consult a Deloitte & Touche LLP professional regarding your specific issues and questions.