Scope

ASC 360 governs the accounting for property, plant, and equipment (PP&E) — tangible long-lived assets used in the production or supply of goods or services, for rental to others, or for administrative purposes. The scope includes:

Land, land improvements, buildings, leasehold improvements
Machinery, equipment, furniture, fixtures, vehicles
Construction in progress
Capitalized software (cross-reference to ASC 350-40 for internal-use software)
Tooling and certain self-constructed assets

ASC 360 also provides the impairment framework for long-lived assets to be held and used and the accounting for long-lived assets to be disposed of (sale, abandonment, distribution to owners, exchange).

Initial recognition

PP&E is recognized at cost — including the purchase price, freight, installation, testing, sales taxes, and other costs necessary to bring the asset to its intended use. For self-constructed assets, cost includes directly attributable costs and capitalized interest under ASC 835-20.

Cost components that ARE capitalized:

Purchase price (net of discounts and rebates)
Freight and handling
Installation, set-up, testing
Sales taxes and import duties
Site preparation costs
Borrowing costs for self-constructed assets meeting ASC 835-20 criteria
Costs of trial runs (after testing but before commercial production)
Asset retirement obligations under ASC 410-20

Cost components that are NOT capitalized:

General overhead not directly attributable
Training costs (unless required to make the asset functional)
Costs of relocating existing equipment
Operating losses during start-up
Costs of opening new facilities
Administrative and general expenses

Capitalize vs. expense — repairs and maintenance

The capitalize/expense distinction for subsequent expenditures is one of the most operationally consequential decisions in PP&E accounting:

Capitalize — improvements that (a) extend the useful life, (b) increase the capacity or efficiency, or (c) materially improve the quality of output. Major overhauls and component replacements typically qualify.
Expense — routine maintenance, ordinary repairs, minor replacements that maintain the asset in its existing condition.

The distinction is judgmental and routinely audit-tested. A consistent capitalization policy (with a dollar threshold above which costs are evaluated for capitalization) is essential. The IRS has separate "tangible property regulations" under IRC § 263(a) that establish their own framework for tax purposes; book and tax treatment can diverge.

Depreciation

PP&E (other than land) is depreciated over its useful life. The depreciation method should reflect the pattern in which the asset's economic benefits are consumed:

Straight-line — equal depreciation per period. Most common; appropriate when benefits are consumed evenly over time.
Units-of-production — depreciation per unit of output. Used for equipment where consumption is more closely tied to output than time.
Accelerated methods (declining balance, sum-of-the-years' digits) — front-loaded depreciation. Used when the asset's economic benefits are consumed more rapidly early in its life.

Useful life is the period over which the asset is expected to provide economic benefit. Considerations include expected use, expected wear and tear, technical or commercial obsolescence, legal or contractual limits on use. Useful lives must be reviewed periodically and revised if expectations have changed.

Salvage value is the estimated residual at the end of the useful life. Depreciation is computed on the depreciable base — cost minus salvage value.

Componentization — under US GAAP, componentization (separately depreciating significant components of an asset over their distinct useful lives) is permitted but not required. IFRS requires componentization. For US-parented multinationals, components depreciated separately for IFRS local statutory reporting may be depreciated as a unit for US GAAP consolidation, creating reconciling items.

Impairment of long-lived assets to be held and used (ASC 360-10-35)

The impairment test is a two-step process specific to ASC 360 — different from the one-step goodwill test under ASC 350.

Step 1 — Recoverability test. The carrying amount of the asset (or asset group) is compared to the undiscounted future cash flows expected from its use and eventual disposition. If carrying amount exceeds undiscounted cash flows, an impairment exists and Step 2 is required. If undiscounted cash flows exceed carrying amount, no impairment is recognized — even if a discounted cash flow analysis would suggest impairment.

The use of undiscounted cash flows in Step 1 is the distinctive (and sometimes counterintuitive) feature of ASC 360. It creates a higher threshold for impairment recognition than goodwill or many international frameworks.

Step 2 — Measurement. If Step 1 indicates impairment, the asset is written down to fair value — typically determined using discounted cash flows, market multiples, or replacement cost analysis. The impairment loss is the excess of carrying amount over fair value.

Triggering events that require an impairment evaluation include:

Significant decrease in market price
Significant adverse change in extent or manner of use
Significant adverse change in legal factors or business climate
Accumulation of costs significantly above the amount originally expected for acquisition or construction
Current period operating or cash flow loss combined with a history of losses, or projected continuing losses
Current expectation that a long-lived asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life

Asset group

Impairment testing is performed at the lowest level for which identifiable cash flows are largely independent. This is the asset group — which may be an individual asset, a set of assets, or a larger group depending on the cash-generating structure of the business. The asset group concept is critical: testing at too high a level can mask impairment of specific assets; testing at too low a level can produce false impairments where supporting infrastructure isn't included.

For a manufacturing facility with a single product, the asset group might be the entire facility. For a multi-product facility, it might be a production line. For a retail business, it might be an individual store or a regional cluster. The determination is judgmental and reviewed by auditors.

Long-lived assets to be disposed of

Assets classified as held for sale under ASC 360-10-45-9 require specific criteria to be met:

Management with the authority to approve the action commits to a plan to sell
The asset is available for immediate sale in its present condition
An active program to locate a buyer is initiated
The sale is probable within one year
The asset is being actively marketed at a reasonable price relative to its current fair value
Actions to complete the plan suggest unlikely material changes

Once classified as held for sale:

Depreciation ceases
The asset is measured at the lower of carrying amount and fair value less costs to sell
The asset is presented separately on the balance sheet
Adjustments to the asset's value (up or down) flow through current earnings, with recoveries limited to previously-recognized losses

Assets to be disposed of other than by sale (abandonment, distribution to owners, exchange) are accounted for under separate provisions. Abandonment without disposal: continue depreciating until use ceases, then write down to salvage value. Distribution to owners: measure at carrying amount. Exchange: typically follow ASC 845 (nonmonetary transactions).

Disposal — gain or loss recognition

On disposal, the gain or loss is the difference between the proceeds (or fair value of consideration received) and the carrying amount. The gain or loss is recognized in earnings — generally in operating income, unless the disposal qualifies as a discontinued operation under ASC 205-20.

Discontinued operations are presented separately when the disposal represents a strategic shift that has (or will have) a major effect on the entity's operations and financial results. The threshold is relatively high — most disposals don't qualify.

Disclosure requirements

Description of PP&E by major class
Depreciation methods and useful lives by major class
Total depreciation expense for the period
Capitalized interest (if any)
Construction in progress and any commitments related to it
Impairment losses recognized and the events leading to recognition
Assets held for sale presentation and the related fair value measurement

Common pitfalls

Useful life never revisited. Useful lives set at acquisition often persist for decades without reassessment. Technology assets, in particular, become obsolete faster than original useful lives suggested. ASC 360 requires periodic review.
Step 1 recoverability test misapplied. The undiscounted cash flow test is specific to ASC 360 — testing on a discounted basis would produce different (and more frequent) impairment conclusions, but it's not the standard.
Asset group definition shifts to convenience. Asset groups that change between periods (or between impairment tests and other purposes) raise red flags. The asset group should reflect the cash-generating structure consistently.
Held-for-sale criteria over-applied. Companies that classify assets as held for sale when the disposal is contemplated but not yet probable defer depreciation prematurely. The criteria are conjunctive — all must be met.
Componentization gap with IFRS. US GAAP doesn't require componentization; IFRS does. Companies operating in both frameworks need to maintain reconciling records to bridge between the two.
Capitalized interest miscalculated. ASC 835-20 capitalization applies only to qualifying assets being prepared for their intended use. Capitalization should cease when the asset is substantially complete and ready for its intended use, even if construction continues for other reasons.

Operator note

Long-lived asset impairment is the discipline where industries with cyclical performance get tested hardest. At Intersil during 2008–2009, the semiconductor industry contraction triggered impairment evaluations on the wafer fabrication facilities. The Step 1 undiscounted cash flow test was sometimes the difference between recognizing impairment and not — the long-tail of the wafer fab's expected output produced undiscounted cash flows that exceeded carrying value even when discounted cash flows pointed the other direction. That's the standard, and it's a meaningful protection for capital-intensive businesses against premature write-downs in cyclical troughs.

At NBCU Parks & Resorts, the PP&E balance was significant — attractions, rides, buildings, infrastructure, themed environments. The capitalization decisions on attraction refurbishments were judgment-heavy: when does a refresh extend the useful life (capitalize) versus restore the existing economic life (expense)? The policy was reviewed annually with the audit team, and individual project decisions were documented at the project level with the capitalization analysis. The asset group definitions for impairment testing at the parks operated below the segment level — typically at the individual attraction or themed land, where cash flows could be reasonably identified.

A few principles I'd flag:

The useful life decision matters more than people think. A 10-year asset depreciated over 7 years produces front-loaded expense and a smaller balance sheet. A 7-year asset depreciated over 10 understates expense and overstates the balance sheet. Get the useful life right at acquisition, and revise when expectations change.

Asset groups should reflect operational reality. The temptation is to define asset groups at the level that makes impairment hardest to recognize. The standard requires defining them at the lowest level of independent cash flows. Auditors test this annually and the SEC has commented on overly broad asset group definitions.

Disposal accounting is mechanical but error-prone. Gain or loss on disposal is straightforward when the carrying amount and proceeds are clear. It gets messy when there are demolition costs, environmental remediation obligations, or trailing receivables. Build a disposal checklist that captures all the elements of the transaction.

For consulting clients in capital-intensive industries (manufacturing, restaurants, real estate, hospitality), the most common ASC 360 issue I see is impairment indicators that weren't documented as evaluated. A location with three years of declining cash flows, or an equipment line being retired, or a market that's deteriorating — the triggering event is identifiable, but the documented evaluation isn't in the file. When auditors find the trigger and don't find the evaluation, the conclusion is restatement risk. Build the impairment trigger log as a standing controller responsibility, refreshed quarterly.

Related references

ASC 350 — Intangibles, Goodwill (different impairment framework — one-step fair value test)
ASC 410-20 — Asset Retirement Obligations
ASC 842 — Leases (right-of-use assets follow a different framework)
ASC 835-20 — Capitalization of Interest
ASC 205-20 — Discontinued Operations
IAS 16 — Property, Plant and Equipment (international counterpart, with componentization requirement)
IAS 36 — Impairment of Assets (international impairment counterpart, one-step recoverable amount test)