Impairment

ASC 310-30 formerly governed loans and debt securities acquired with evidence of deteriorated credit quality (so-called purchased credit-impaired assets), where it was probable at acquisition that the investor would not collect all contractually required payments receivable; it required accreting the excess of expected cash flows over the initial investment into interest income as accretable yield and prohibited carrying over or creating a valuation allowance at acquisition. Every substantive paragraph of this subtopic has been superseded by Accounting Standards Update No. 2016-13 (CECL). Purchased financial assets with credit deterioration are now accounted for under Subtopics 326-20 and 326-30.

ASC 310-40 formerly contained the creditor's accounting for troubled debt restructurings (TDRs) — the definition of a TDR, measurement of impairment on restructured loans, accounting for assets or equity interests received in satisfaction of a receivable, and TDR-specific disclosures. Every operative paragraph has been superseded, principally by ASU 2022-02 (which eliminated the TDR model for creditors that have adopted ASC 326), with earlier deletions by ASU 2016-13 and ASU 2014-09. The subtopic is now an empty shell: creditors account for modifications to borrowers experiencing financial difficulty under ASC 326 and ASC 310-10 instead.

This Subtopic gives industry guidance for depository and lending institutions on receivables, principally debt-equity swap programs in which a bank converts U.S.-dollar-denominated loans to financially troubled countries into approved local equity investments. A swap is measured at fair value at the date both parties agree to the transaction, considering both the secondary market price of the loan given up and the fair value of the equity or net assets received; a shortfall against the recorded investment in the loan is a loss charged to the allowance for loan losses. It also addresses nonaccrual loans to troubled countries, when interest may again be recognized as income, and gross presentation of customers' liabilities on acceptances.

This Subtopic governs the accounting for notes receivable arising from time-sharing interval sales, which are typically seller-financed recourse promissory notes with 5- to 10-year terms. It requires uncollectibility (of both principal and interest) to be measured on actual collection experience rather than on proceeds from receivable sales or securitizations, and requires an allowance for credit losses estimated each reporting period (at least quarterly) under Subtopic 326-20. It also prescribes specific disclosures about note maturities, interest rates, and allowance activity, including receivables sold with recourse.

ASC 321-10 governs the accounting for investments in equity securities and other ownership interests (partnerships, unincorporated joint ventures, LLCs) that are not consolidated, not accounted for under the equity method, and not derivatives. The default rule is fair value measurement in the balance sheet with all unrealized holding gains and losses (and dividend income) recognized in earnings (321-10-35-1, 35-6). As an alternative, an entity may elect, investment by investment, a "measurement alternative" for an equity security without a readily determinable fair value: cost minus impairment, adjusted up or down for observable price changes in orderly transactions for identical or similar investments of the same issuer (321-10-35-2).

ASC 323-10 governs the equity method of accounting for investments in common stock (and in-substance common stock) of corporate joint ventures and other investees over which the investor can exercise significant influence but does not control. An investment of 20% or more of the voting stock creates a rebuttable presumption of significant influence (323-10-15-8); under the method, the investment is initially recorded at cost (323-10-30-2) and then adjusted for the investor's share of investee earnings/losses, dividends, OCI, intra-entity profit eliminations, and basis-difference amortization, and reported as a single line on both the balance sheet and income statement (323-10-45-1). Losses are recognized only down to zero (plus other investments and committed support), and other-than-temporary declines in value must be recognized (323-10-35-32).

ASC 325-20 formerly governed the cost method of accounting for equity securities without a readily determinable fair value (cost-method investments), including their initial measurement, impairment assessment, and disclosure. Every substantive paragraph in the subtopic was superseded by ASU 2016-01, so the subtopic is now an empty shell with no operative guidance. Equity investments previously accounted for under the cost method are now within the scope of ASC 321, Investments—Equity Securities.

ASC 325-30 governs investments in life insurance contracts held by entities that are the owner or beneficiary (e.g., corporate-owned or bank-owned life insurance), and, in separate Subsections, investments in life settlement contracts purchased from policy owners. The general rule is that a life insurance policy is reported as an asset measured at "the amount that could be realized under the insurance contract" at the balance sheet date, determined policy-by-policy (or certificate-by-certificate) and reflecting probable contractual limitations. For life settlement contracts, an investor makes an irrevocable, instrument-by-instrument election between the investment method (cost plus capitalized premiums and direct external costs, subject to impairment) and the fair value method (remeasured each period through earnings).

ASC 325-40 governs how a holder recognizes interest income on beneficial interests in securitized financial assets — both a transferor's retained interests in securitizations accounted for as sales under Topic 860 and purchased beneficial interests. The holder measures accretable yield at acquisition as the excess of cash flows expected to be collected (or contractual cash flows, for PCD beneficial interests) over the initial investment (or initial amortized cost basis), and accretes it into interest income using the effective yield method. Expected cash flows must be updated each period; favorable or adverse changes are run first through the credit loss guidance in Topic 326, with any residual change adjusting accretable yield prospectively.

ASC 325-905 governs how agricultural cooperatives account for investments in other cooperatives and how patrons (members) account for their investments in a cooperative. The core rule is that these nonmarketable long-term investments are carried at cost — including allocated equities and per-unit retains recorded at face value — rather than as equity securities, with the equity method of ASC 323-10 applied only in the infrequent case where the investor's share of the investee cooperative's unallocated retained earnings is material. Carrying amounts must be written down when the patron cannot recover full carrying value, and undistributed retains are classified as noncurrent.

This Subtopic gives depository and lending institutions the recognition and measurement rules for four narrow items: Federal Home Loan Bank (FHLB) and Federal Reserve Bank stock, National Credit Union Share Insurance Fund (NCUSIF) deposits and premiums, regular-way securities trades, and exchange memberships. FHLB/Federal Reserve Bank stock is a restricted investment security carried at cost (no readily determinable fair value; redeemable only at $100 par) and tested for impairment based on ultimate recoverability of par, not temporary declines. NCUSIF deposits are assets only so long as they are fully refundable, and regular-way purchases and sales are recorded on the trade date.

This Subtopic governs how health care entities (within the scope of Topic 954) account for investments that are NOT financial instruments — for example, investment real estate or certain oil and gas interests. Such investments are reported at amortized cost and tested for impairment under the Impairment or Disposal of Long-Lived Assets Subsections of Subtopic 360-10. Property held for investment purposes is presented within investments on the balance sheet.

ASC 326-10 is the Overall subtopic of the credit losses Topic: it states the Topic's purpose (how an entity measures credit losses on financial instruments), identifies its three subtopics (Overall; Measured at Amortized Cost; Available-for-Sale Debt Securities), and applies to all entities. Its substantive content today is largely scope plus the transition/effective-date paragraphs in Section 65 for recent ASUs, since the CECL-adoption transition paragraphs from ASU 2016-13 and related updates were superseded on 06/21/2024 once the transition period ended.

ASC 326-20 is the CECL (current expected credit loss) model for financial assets measured at amortized cost, net investments in leases, off-balance-sheet credit exposures, and reinsurance recoverables. At every reporting date an entity records an allowance (a valuation account deducted from amortized cost) equal to management's current estimate of all credit losses expected over the contractual term, based on past events, current conditions, and reasonable and supportable forecasts, with a reversion to historical loss information beyond the forecastable period (326-20-30-1, 30-6, 30-9). Assets are pooled when they share similar risk characteristics and evaluated individually only when they do not (326-20-30-2).

ASC 326-30 governs measurement of credit losses on debt securities classified as available-for-sale (AFS), including loans meeting the definition of debt securities classified as AFS. Unlike the pooled CECL model in 326-20, impairment is assessed at the individual security level: when fair value is below amortized cost, the entity determines how much of the decline is credit-related by comparing the present value of expected cash flows with amortized cost, records that amount as an allowance for credit losses (capped at the amount fair value is below amortized cost), and puts the remaining decline in other comprehensive income. If the entity intends to sell or more likely than not must sell before recovery, the allowance is written off and the security is written down to fair value through earnings.

ASC 330-10 governs the accounting for inventory: inventory is initially measured at cost (all expenditures and charges, direct and indirect, incurred to bring an article to its existing condition and location), with fixed production overhead allocated based on normal capacity and unallocated overhead, abnormal freight, handling, and spoilage expensed as incurred. Cost may be assigned using FIFO, average cost, LIFO, standard cost, or the retail inventory method, chosen to most clearly reflect periodic income and applied consistently. Subsequent measurement is bifurcated: inventory measured under LIFO or the retail inventory method uses lower of cost or market, while all other inventory (FIFO, average cost) uses lower of cost and net realizable value.

This subtopic applies inventory accounting to film production and distribution entities that hold physical products for sale, such as videocassettes and digital video discs. Its core rule is that at each balance sheet date the entity must evaluate these product inventories for net realizable value and obsolescence exposure and record appropriate adjustments (330-926-35-1). Scope follows the Entertainment—Films Overall Subtopic scope in Section 926-10-15.

ASC 330-978 governs how time-share sellers measure time-sharing inventory (intervals) and cost of sales. Sellers must use the relative sales value method, applied phase by phase, with common costs (including amenities) allocated among benefited phases, and must recalculate total estimated time-sharing revenue and total costs at least quarterly. Changes in estimate are recorded as current-period adjustments, and rental/other activity during the holding period is treated as incidental operations that reduce the pool of inventory costs.

ASC 340-40 governs capitalization, amortization, and impairment of two kinds of contract costs for contracts within the scope of Topic 606: incremental costs of obtaining a contract and costs to fulfill a contract that are not within the scope of another Topic. Incremental costs of obtaining a contract (e.g., sales commissions) are capitalized if the entity expects to recover them (340-40-25-1), while fulfillment costs are capitalized only if they relate directly to an identifiable (or specifically anticipated) contract, generate or enhance resources used to satisfy future performance obligations, and are expected to be recovered (340-40-25-5). Capitalized amounts are amortized consistently with transfer of the related goods or services and tested for impairment, with no reversal of impairment losses.

ASC 340-928 governs when a music entity may capitalize advance royalties paid to artists, the cost of record masters, and minimum guarantees paid in advance by licensees. Capitalization hinges on recoverability: an advance royalty or the record company's share of record master cost is an asset only if the artist's past performance and current popularity provide a sound basis for estimating recovery from future royalties or sales. Capitalized amounts are charged to expense as royalties are earned or amortized over the recorded performance's life in relation to expected net revenue, with immediate write-off of nonrecoverable portions.

ASC 350-20 governs the accounting for goodwill after its initial recognition (initial recognition/measurement is in 805-30, 805-60, or 958-805) and prohibits capitalizing internally developed goodwill. Under the general model, goodwill is not amortized but is tested for impairment at least annually at the reporting unit level, with an optional qualitative "more likely than not" screen; if the quantitative test shows the reporting unit's carrying amount exceeds its fair value, a loss is recognized for that excess, capped at the goodwill allocated to the unit. Private companies and not-for-profit entities may elect accounting alternatives to amortize goodwill over 10 years or less and to test only upon a triggering event, and/or to evaluate triggering events only as of the end of each reporting period.

ASC 350-30 governs the accounting for intangible assets other than goodwill — their recognition when acquired individually or in an asset group, the expensing of internally developed intangibles that are not specifically identifiable, and, for all intangibles (including those from a business combination), their subsequent measurement, impairment, presentation, and disclosure. The core rule is that accounting after acquisition turns on useful life: finite-lived intangibles are amortized over their useful life (residual value presumed zero) and tested for impairment under Subtopic 360-10, while indefinite-lived intangibles are not amortized and are tested for impairment at least annually by comparing fair value with carrying amount.

This Subtopic tells a broadcaster (licensee) how to account for rights acquired under a license agreement for program material: when to recognize the asset and related liability, at what amounts to record them, and how to amortize and test them for impairment. The core rule is that the license is treated as a purchase of a right or group of rights, recognized when the license period begins and three cost/acceptance/availability conditions are met, then amortized based on estimated future showings and carried at the lower of unamortized cost or fair value. It also governs accounting for terminated network affiliation agreements.

ASC 350-950 governs accounting for title plants — the indexed historical records of land ownership, encumbrances, maps, and prior title reports used by title insurers, abstract entities, and title agents. Costs directly identifiable with constructing a title plant (and purchased title plants, recorded at cost/fair value of consideration given) are capitalized, while maintenance and title search costs are expensed as incurred. Capitalized title plant is not amortized or depreciated; it is carried indefinitely unless impaired under the Impairment or Disposal of Long-Lived Assets Subsections of Subtopic 360-10.

This subtopic applies Topic 350's goodwill and intangibles guidance to entities with regulated operations. Its core rule is that goodwill is not amortized and is tested for impairment under Topic 350 unless a regulator permits amortization of goodwill as an allowable cost for rate-making purposes, in which case the regulator's action provides reasonable assurance of a regulatory asset that is amortized over the period allowed for rate-making. It also addresses long-term power sales contracts acquired in a business combination and the need to review such contracts for loss-contract status.

ASC 360-10 governs the accounting for property, plant, and equipment and, in separate "Impairment or Disposal of Long-Lived Assets" Subsections, the impairment testing of long-lived assets held and used and the measurement, presentation, and disclosure of long-lived assets to be disposed of. Cost (including capitalized interest) is allocated to periods through systematic and rational depreciation (360-10-35-4). A held-and-used asset group is written down only if its carrying amount fails an undiscounted cash flow recoverability test, and then only down to fair value (360-10-35-17); held-for-sale assets are measured at the lower of carrying amount or fair value less cost to sell and are not depreciated (360-10-35-43).

This Subtopic gives mining-specific guidance on accounting for mineral rights and mining assets within Property, Plant, and Equipment. It clarifies that undeveloped land does not qualify for interest capitalization, how mineral resource asset current costs are measured when current cost disclosures are provided, and—most importantly—that impairment cash flow estimates for mining assets must include value beyond proven and probable reserves (with the related development and extraction outflows) and must reflect market-participant assumptions about mineral price fluctuations.

This subtopic governs how oil and gas entities capitalize, amortize, impair, and dispose of industry-specific property, plant, and equipment—mineral interests in properties, wells and related equipment and facilities, support equipment and facilities, and uncompleted wells—under the successful efforts method (full cost accounting is left to SEC literature). Only exploration and development costs that relate directly to specific oil and gas reserves are capitalized; other costs are expensed, and exploratory well costs are held in uncompleted wells pending a determination of whether proved reserves were found. Capitalized proved property and well costs are amortized by the unit-of-production method, unproved properties are periodically assessed for impairment via a valuation allowance, and conveyances of mineral interests generally produce no gain when they are poolings of assets or involve substantial future performance obligations.

This subtopic tells insurance entities how to account for and report real estate. Real estate is classified by predominant use as either a real estate investment or real estate used in the business, and real estate acquired in settling mortgage guaranty and title insurance claims is a third, separately reported category measured initially at fair value (investments are measured at cost, then cost less accumulated depreciation). Depreciation and impairment charges follow the balance sheet classification — investment income/realized gains and losses for investments, and adjustments to claim costs incurred for real estate acquired in settling claims.

ASC 360-970 gathers the real estate–specific property, plant, and equipment guidance in two sets of subsections: Real Estate Syndication and Real Estate Project Costs. It requires costs clearly associated with the acquisition, development, and construction of a real estate project to be capitalized and then allocated to project components (by specific identification, then relative fair value/sales value, then area methods), addresses donated and abandoned real estate and changes in use, and applies the Subtopic 360-10 impairment model project by project. For syndications, fees paid to and rentals received from a developer-seller under a master leaseback are adjustments to the basis of the property.

This Subtopic tells regulated entities (utilities) how to account for property, plant, and equipment in three situations: plant abandonments, disallowances of costs of recently completed plants, and capitalization of an allowance for funds used during construction (AFUDC). When abandonment becomes probable, the asset's cost comes out of construction work-in-process or plant-in-service and a separate new asset is recorded — at full cost if a full return on investment is likely to be provided, or at the present value of expected future recovery revenues (discounted at the entity's incremental borrowing rate) if partial or no return is likely, with the shortfall and any probable, estimable disallowance recognized as a loss. When it becomes probable that part of the cost of a recently completed plant will be disallowed for rate-making purposes and the amount is reasonably estimable, that amount is deducted from the plant's reported cost and recognized as a loss.

ASC 410-980 explains how rate-regulated entities apply the asset retirement obligation (ARO) model of Subtopic 410-20. Because rate regulation may allow recovery of retirement costs on a timing pattern different from GAAP ARO cost recognition, a regulated entity that meets the requirements of Topic 980 recognizes a regulatory asset or regulatory liability for that timing difference. Capitalized asset retirement cost is included in long-lived asset impairment testing on the same basis as for any other entity.

This Subtopic tells music-industry entities when to expense artist royalties, record master production costs, advance minimum guarantees paid by licensees, and other license fees. The core rule is that artist royalties (adjusted for anticipated returns) are charged to expense in the period the record sale occurs, advances are expensed as royalties are subsequently earned, and any advance or minimum guarantee that appears unrecoverable is expensed when the loss becomes evident (720-928-25-1, 720-928-25-3).

ASC 818-20 governs the accounting for environmental credits (e.g., emissions allowances, carbon offsets, renewable energy certificates, RINs). An environmental credit is recognized as an asset only if it is probable it will be used to settle an environmental credit obligation, transferred in an exchange transaction, or used in a nonreciprocal transfer; otherwise the cost is expensed as incurred and can never later be capitalized. Credits recognized as assets are classified as compliance credits (not remeasured) or noncompliance credits (tested for impairment each reporting date, with an optional fair value policy election by class for eligible credits).

This Subtopic governs when a real estate investment trust must stop recognizing interest revenue on loans it holds. Interest recognition must be discontinued when it is no longer reasonable to expect the revenue will be received, and certain conditions (past-due payments, default, foreclosure, borrower creditworthiness doubts, construction cost overruns/delays, renegotiation) create a rebuttable presumption that recognition should stop (835-974-35-1). Once discontinued, recognition may not resume and unrecorded interest may not be recognized until it is evident that principal and interest will be collected (835-974-35-2).

ASC 855-926 was the film-industry-specific subsection of the subsequent events guidance, which previously required film entities to consider post-balance-sheet information (such as actual results after the reporting date) in estimating ultimate revenue and testing film costs for impairment. Every substantive paragraph (855-926-05-1, 15-1, and 35-1) was superseded by ASU 2012-07, so the subtopic now contains no operative guidance. Film cost impairment and ultimate revenue estimation are addressed instead in ASC 926-20, and general subsequent events guidance remains in ASC 855-10.

ASC 926-20 governs how film production and distribution entities capitalize, amortize, impair, and disclose film costs, which must be reported as a separate asset on the balance sheet (926-20-25-1). Films predominantly monetized on their own are amortized by the individual-film-forecast-computation method — current-period revenue over remaining unrecognized ultimate revenue as of the beginning of the fiscal year (926-20-35-1) — while films in a film group are expensed based on a reasonably reliable estimate of the film's use (926-20-35-2). Unamortized film costs are written down to fair value when triggering events indicate impairment, and such write-downs may never be restored (926-20-35-13).

ASC 944-60 tells insurance entities when and how to recognize a premium deficiency (loss recognition) on insurance contracts, with separate guidance for short-duration and long-duration contracts. For short-duration contracts, a deficiency exists when expected claim costs and claim adjustment expenses, expected policyholder dividends, unamortized acquisition costs, and maintenance costs exceed related unearned premiums; it is recognized first by writing off unamortized acquisition costs and then by accruing a liability for any excess (944-60-25-4 through 25-6). For long-duration contracts, if actual experience shows existing contract liabilities plus the present value of future gross premiums will not cover future benefits and settlement costs and recover unamortized present value of future profits, the deficiency is charged to income by reducing the present value of future profits or increasing the liability for future policy benefits (944-60-25-7 through 25-8).

ASC 980-20 governs what happens when an entity's operations (or a separable portion of them) stop meeting the criteria in 980-10-15-2 for rate-regulated accounting — because of deregulation, a shift away from cost-based rate-making, or competition/rate resistance. On discontinuation, the entity eliminates from its balance sheet all regulatory assets and liabilities that entities in general could not recognize, but does not adjust the carrying amounts of plant, equipment, and inventory unless impaired under Subtopic 360-10. The net adjustment goes to income of the period of discontinuation, classified separately within income from continuing operations as an unusual or infrequently occurring item.

ASC 985-20 governs the accounting for costs of computer software to be sold, leased, or otherwise marketed, whether internally developed or purchased. All costs incurred to establish technological feasibility are research and development expensed as incurred (985-20-25-1); costs of producing product masters after technological feasibility is established are capitalized (985-20-25-3) and capitalization ceases when the product is available for general release (985-20-25-6). Capitalized amounts are amortized product-by-product at the greater of the revenue-ratio or straight-line amount (985-20-35-1) and are written down to net realizable value at each balance sheet date (985-20-35-4).