Long-lived assets that are classified as held and used are tested for recoverability upon the occurrence of a triggering event, which is an event or change in circumstance that indicates that their carrying amount may not be recoverable. When performing a recoverability test, an entity groups long-lived assets with other assets and, possibly, liabilities at the lowest level for which the entity can identify cash flows that are largely independent of the cash flows of other assets and liabilities. Such a grouping is called an asset group.

An asset group is not recoverable if its carrying amount is in excess of the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset group. When an asset group is not recoverable, the next step is to measure an impairment loss as the amount by which the carrying amount of the asset group exceeds its fair value.

An entity may decide to sell one or more of its long-lived assets. Long-lived assets are grouped with the other assets and liabilities the entity intends to sell. Such a grouping is called a disposal group. Once all of the held-for-sale classification criteria are met, an entity classifies the disposal group as held for sale, stops depreciating or amortizing the long-lived assets, and measures the disposal group at the lower of its carrying amount or fair value less cost to sell. The entity recognizes a loss, if any, to adjust the carrying amount of the disposal group to its fair value less cost to sell in the period in which the held-for-sale criteria are met and in each subsequent period until the disposal group is sold. Therefore, the carrying amount of the disposal group is adjusted for subsequent increases or decreases in its fair value less cost to sell, except that any subsequent increase cannot exceed the cumulative loss previously recognized. Any gain or loss from the sale of the disposal group not previously recognized is recognized on the date of sale.

An entity may also dispose of one or more long-lived assets before the end of their previously estimated useful life by, for example, abandoning them, exchanging them in a transaction accounted for the carrying amount, or distributing them to owners in a spin-off. Assets to be disposed of other than by sale should continue to be classified as held and used until they are disposed of.

Once long-lived assets have been classified as held for sale or have been disposed of an entity must determine how to present the disposition in its financial statements. The entity must first assess whether the disposition meets the criteria for discontinued-operations reporting. The purpose of reporting discontinued operations separately from continuing operations is to provide stakeholders with information about assessing the effects of a disposal on an entity’s ongoing operations. The operations of a disposal group may be presented as a discontinued operation only if (1) the disposed-of assets (and liabilities) represent a component of an entity, (2) the assets (and liabilities) meet the held-for-sale classification criteria or have been disposed of, and (3) the disposal represents a strategic shift that has or will have a major effect on an entity’s operations and financial results. Therefore, not all disposals qualify for discontinued-operations reporting.

The disclosure requirements differ depending on whether a disposal (1) meets the criteria for discontinued-operations reporting, (2) does not meet the criteria for discontinued-operations reporting but is (or includes) an individually significant component of the entity, or (3) does not meet the criteria for discontinued-operations reporting and is not (or does not include) an individually significant component of the entity. Entities will need to use judgment in interpreting the meaning of the term “individually significant,” since this term is not defined.