Follow a long-lived asset from cost to exit

A machine can raise a different accounting question every year. At purchase, you decide which costs prepare it for use. While the machine operates, you allocate its cost. If demand falls, you may need to test whether the asset group is recoverable. When the company plans to sell or dispose of it, classification and measurement can change again. ASC 360 connects those decisions, but it does not let you answer all of them with one calculation.

Read the asset lifecycle as one chapter

Read these lessons in order before using the examples and practice below. Each lesson begins with the carrying amount produced by the earlier stage, so acquisition, depreciation, impairment, and disposal remain connected.

1. 1

   Control acquisition cost before allocating a bundle

   Identify the asset, intended use, readiness costs, and supported accounting units.

2. 2

   Support useful life and salvage value

   Establish the estimates that determine depreciable amount and service periods.

3. 3

   Compare four depreciation patterns

   Choose an allocation pattern without treating depreciation as market valuation.

4. 4

   Test a held-and-used asset group for impairment

   Keep the asset group, recoverability screen, and fair-value measurement in order.

5. 5

   Route assets leaving use without collapsing the events

   Separate held-and-used, held-for-sale, abandonment, and completed sale.

6. 6

   Reconcile and release the tangible-asset close

   Tie additions, depreciation, impairment, disposals, and ending balances together.

Keep the asset and date attached to every decision

Begin with the same controls throughout the lifecycle: identify the asset or asset group, the entity that controls it, the reporting date, and the evidence supporting each amount. The question changes as the asset moves through the business.

Include costs that prepare the asset for use

Initial cost starts with a specific asset and its intended use. Under ASC 360-10-30-1, historical cost includes costs necessarily incurred to bring an asset to the location and condition needed for that use. Purchase price, freight, installation, and testing can qualify when the facts support their connection to readiness. Training, opening activities, abnormal waste, and routine operating costs answer different questions.

The invoice heading does not decide the result. Match each amount to the contract, receiving record, installation report, or other evidence that shows what the company received and why the cost was necessary. Use asset acquisition cost to study that boundary.

Worked example: See how Linden Peak builds and allocates acquisition cost.

Once the asset is ready for use, the question shifts. The company no longer asks which costs entered the asset. It asks how the asset's supported cost should reach expense while the asset provides service.

Allocate cost without pretending to predict value

ASC 360-10-35-4 describes depreciation as a system of accounting that allocates the cost of a productive facility over its estimated useful life. A depreciation method should follow the supported pattern in which the company expects to consume the asset's service potential. Straight-line, activity-based, and accelerated methods can produce different timing, but none of them automatically measures market value.

Useful life, residual value, method, and in-service date are estimates or policy inputs that need support. New information can require prospective accounting under ASC 250. A data error or an unsupported prior estimate raises a different question. Test the mistaken claim that depreciation measures market value.

Optional independent practice: Choose the depreciation inputs and method.

Depreciation produces a carrying amount at a date. That amount is the reported starting point for later work. It is not a forecast of sale proceeds, and it does not prove that the asset can still generate the benefits management expected.

Test a held-and-used asset group in the right order

A decline in demand, physical damage, an adverse business change, or another indicator can require a recoverability test under ASC 360-10-35-21. Before comparing any numbers, identify the asset group. ASC 360-10-35-23 uses the lowest level for which identifiable cash flows are largely independent of other assets and liabilities.

1. Confirm the scope, classification, indicator, and asset group. The test described here is for a bounded held-and-used long-lived asset group.
2. Screen recoverability with the applicable undiscounted cash flows. Under ASC 360-10-35-17, measurement does not begin unless carrying amount is not recoverable.
3. Measure the loss against fair value only after the screen fails. The shortfall in the screening comparison is not the impairment loss.
4. Use the adjusted amount as the new cost basis. ASC 360-10-35-20 requires later depreciation over the asset's remaining useful life.

Open the long-lived asset impairment and recoverability test pages before you calculate.

Worked example: Use the checked production-cell example to see why the recoverability shortfall and impairment loss differ.

The sequence is compact on paper, but the difficult work often sits inside the asset-group boundary and the forecasts. A filing can show how one company describes those judgments.

See how one company applies the model to its stores

Starbucks Corporation's 2025 Form 10-K explains that it tests property, plant, and equipment and certain other finite-lived assets when facts indicate that their carrying amounts may not be recoverable. For company-operated stores, Starbucks reports that the individual store is the asset-group level and that the group includes property, plant, and equipment and lease right-of-use assets.

Starbucks also identifies projected revenue, operating costs, useful lives, and the discount rate as important assumptions. It reported $595.3 million of net disposition and impairment charges for fiscal 2025, including $102.2 million of impairment losses within store operating expenses. Those amounts are in millions of US dollars.

The disclosure helps you locate the unit of account, sequence, estimates, and reported amounts. It does not give an outside reader every forecast or control needed to reproduce management's conclusions. Read the property, plant and equipment policy and related notes in Starbucks' complete 2025 Form 10-K before evaluating the disclosure.

An asset that remains in use stays on the held-and-used path. A plan to sell the asset does not move it to a new measurement model until all required classification criteria are met.

Distinguish a plan to sell from a completed disposal

ASC 360-10-45-9 requires all six held-for-sale criteria. Management intent alone is not enough. When the criteria are met, ASC 360-10-35-43 measures the disposal group at the lower of carrying amount or fair value less cost to sell, and depreciation stops while the asset remains classified as held for sale.

A completed sale raises derecognition and gain-or-loss questions. Cash proceeds are not the gain. The company removes the asset and its related accumulated amounts, records the consideration, and recognizes the supported difference under the applicable guidance. Compare held-for-sale classification with asset disposal.

Optional independent practice: Route an asset toward sale.

Each acquisition, allocation, impairment, and disposal changes the asset records. The final control is to show how those movements produce the amount reported at period end.

Reconcile gross cost, accumulated amounts, and ending net assets

A net change in property, plant, and equipment can hide additions, depreciation, impairment, disposals, transfers, and noncash transactions. Keep gross asset amounts and accumulated depreciation or impairment in separate schedules. Tie each movement to the fixed-asset register and general ledger before you interpret the ending balance.

Use the property, plant, and equipment rollforward to build that bridge. The longer tangible asset module covers acquisition, construction, depreciation, resource obligations, exits, and the close. The long-lived asset estimates and exits module gives you a shorter path through estimate changes, a sale, and held-and-used impairment.

Practice after you finish the chapter

Begin with Beacon's failed-screen example. Then change the numbers so the asset group passes the screen, even though fair value remains lower. Finish by rebuilding the exact ASC 360 trail that governs both outcomes.

Use the versioned ASC 360 source record to see the paragraph set and boundaries reviewed for this course material.

Carry the lifecycle into your next accounting problem

You can now explain why initial cost, depreciation, impairment, held-for-sale classification, disposal, and reconciliation are connected but separate decisions. Return to Complete every accounting decision when scope, measurement, presentation, or disclosure has become blurred. Return to Understanding the ASC when you want another Topic route. The next planned technical hub will use the same discipline to follow a borrowing through interest, classification, modification, and extinguishment.