How do you test groups of long-lived assets for impairment?

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AcadiFi · Accepted Answer

Under ASC 360, assets are grouped at the lowest level for which identifiable cash flows are largely independent of cash flows of other assets and liabilities. This 'asset group' is the unit of account for impairment testing — similar in spirit to an IFRS cash-generating unit but not identical. Example: Calypso Resorts operates a hotel in Aruba. The building, furniture, pool infrastructure, and intangible rights to a beachfront lease don't produce cash flows individually — they operate as a unit. Asset group carrying amount = $92M. The hotel's undiscounted future cash flows over remaining 20-year useful life = $88M — recoverability fails. Fair value (DCF at 11%) = $64M. Impairment = $92M - $64M = $28M. Allocate impairment pro-rata to long-lived assets in the group based on carrying amount, but no individual asset is written below its fair value if determinable. ```mermaid flowchart TD A[Identify
Indicator] --> B[Define
Asset Group] B --> C[Recoverability
Test] C --> D{Undisc CF
>= CV?} D -->|Yes| E[No Loss] D -->|No| F[Measure FV] F --> G[Allocate
Loss] ``` Grouping decisions are crucial: over-aggregation hides impairment, under-aggregation can create artificial losses when cross-subsidizing operations exist. Auditors test grouping conclusions.

How do you test groups of long-lived assets for impairment?

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