1210
Fixed Assets
ASC 360: Property, Plant and Equipment
📖 Overview
This standard addresses accounting treatment for property, plant and equipment. Fixed assets are measured at cost less accumulated depreciation and accumulated impairment losses. GAAP does not permit the revaluation model. Impairment is tested using a two-step test.
🎯 Scope
This standard applies to the accounting treatment for property, plant and equipment (fixed assets), including:
- Land.
- Buildings.
- Machinery and equipment.
- Furniture and fixtures.
- Vehicles.
Does not apply to intangible assets (ASC 350) or investment property (ASC 360 treats them as ordinary fixed assets).
⚙️ Key Principles
1. **Measurement**:
- **Initial Measurement**: Historical Cost.
- **Subsequent Measurement**: Cost Model only.
- **GAAP does NOT permit the Revaluation Model**.
2. **Depreciation**: Systematic allocation of the asset's cost over its useful life.
- Permitted methods: Straight-Line, Declining Balance, Units of Production.
3. **Impairment**:
- **Two-Step Test**:
- **Step 1**: Compare Carrying Amount with Undiscounted Future Cash Flows.
- **Step 2**: If carrying amount > undiscounted cash flows, Impairment Loss = Carrying Amount - Fair Value.
- **Impairment losses cannot be reversed**.
✅ Recognition
Fixed assets are recognized when acquired or constructed.
Subsequent costs (maintenance, repairs) are recognized as expenses in the income statement.
Betterments that increase future economic benefits (extend useful life, increase capacity, improve quality) are capitalized.
Impairment losses are recognized in the income statement and cannot be reversed.
📏 Measurement
**Initial Measurement:**
- Cost includes: Purchase price, customs duties, transport, installation, and other direct costs.
- Cost excludes: Maintenance, training, initial operating losses.
**Subsequent Measurement:**
- **Cost Model**: Cost - Accumulated Depreciation - Impairment Losses.
**Depreciation:**
- **Straight-Line Method**: (Cost - Salvage Value) ÷ Useful Life.
- **Declining Balance Method**: Fixed rate × Carrying Amount.
- **Units of Production Method**: (Cost - Salvage Value) × (Units Produced ÷ Total Expected Units).
**Impairment:**
- Impairment Loss = Carrying Amount - Fair Value.
- Impairment losses cannot be reversed.
📊 Presentation
**On the Balance Sheet:**
- Fixed assets appear within non-current assets.
- Accumulated depreciation appears as a deduction from asset cost.
**On the Income Statement:**
- Depreciation expense appears within operating expenses.
- Impairment losses appear as a separate expense.
- Gains or losses on asset sales appear within other income or expenses.
**Note Disclosures:**
- Depreciation methods used.
- Useful lives or depreciation rates.
- Gross carrying amount and accumulated depreciation.
- Reconciliation of fixed asset movement.
📝 Disclosure Requirements
Disclosures required:
- Accounting policies for fixed assets.
- Depreciation methods used for each asset class.
- Useful lives or depreciation rates.
- Gross carrying amount and accumulated depreciation by class.
- Reconciliation of fixed asset changes (additions, disposals, depreciation, impairment).
- Restrictions on asset ownership (pledges, guarantees).
- Contractual commitments to purchase fixed assets.
- Impairment losses recognized and reasons.
- Gains or losses on asset sales.
🔗 Related Standards
ASC 350 (Intangibles - Goodwill and Other), ASC 360 (Impairment - part of this standard), ASC 842 (Leases)
📁 Related Accounts in the Chart of Accounts
Explore accounts commonly associated with this accounting standard.