Held for Use vs Held for Sale: Impairment Compared

Under U.S. GAAP (ASC 360), impairment indicators trigger an undiscounted cash flow recoverability test for an asset held for use. If the asset fails that test, an impairment loss is recognized for any excess of carrying amount over fair value. Depreciation continues using the revised basis, and the loss cannot later be reversed. An asset held for sale is carried at the lower of carrying amount or fair value less costs to sell, stops depreciating, and can recover only its held-for-sale losses.

Quick definitions: GAAP means U.S. generally accepted accounting principles, and ASC 360 is the part of the FASB Accounting Standards Codification that covers property, plant, and equipment (PP&E). One phrase in an exam question can change which model applies, so read the facts carefully. The examples below use a single machine and assume no earlier held-for-use impairment unless stated. For held-for-use testing, assume the machine generates cash flows that are largely independent of those from other assets and liabilities. Otherwise, test recoverability at the lowest asset-group level with largely independent cash flows (ASC 360-10-35-23).

Exam tip: On the CPA FAR exam, the traps in this topic usually sit in three places. Check whether every held-for-sale criterion is met, whether selling costs belong in the calculation, and how much of a later recovery is allowed.

Held for use vs held for sale: the key differences

For the first column’s calculation, review the asset impairment test and recoverability examples. For the later depreciation calculation, see the impairment loss journal entry guide.

A plan to sell is not enough by itself

Depreciation stops only for an asset that will be sold and that meets every held-for-sale criterion. An asset that will be disposed of some other way, such as by abandonment, by exchange for a similar productive asset, or by distribution to owners in a spinoff, stays classified as held and used until it is actually disposed of (ASC 360-10-45-15). Continue depreciating the asset while it remains held and used. If the company commits to abandon it before the end of its previously estimated useful life, revise depreciation to reflect its shortened remaining useful life (ASC 360-10-35-47).

An asset qualifies as held for sale only when all six of these criteria are met (ASC 360-10-45-9):

• Management with the authority to approve the action commits to a plan to sell.
• The asset is available for immediate sale in its present condition, subject only to usual and customary terms.
• An active program to find a buyer, and other actions needed to complete the plan, have started.
• The sale is probable and expected to be completed within one year, with limited exceptions for delays outside the company’s control.
• The asset is being actively marketed at a price that is reasonable compared with its current fair value.
• It is unlikely the plan will change significantly or be withdrawn.

If even one criterion fails, the asset stays held for use and depreciation continues.

The governing guidance is ASC 360-10-45-9. For a real-world example, see how First Solar’s 2025 Form 10-K accounting policies summarize the same criteria. The numerical example below assumes classification is valid throughout the periods shown.

Measure a held-for-sale write-down

Hypothetical example. Harbor Components has a machine with a $90,000 carrying amount after all required depreciation and preclassification assessments. It now meets the held-for-sale criteria. Fair value is $76,000, and direct incremental costs to sell are estimated at $4,000.

Fair value less costs to sell = $76,000 − $4,000 = $72,000.
Required write-down = $90,000 − $72,000 = $18,000.

This example uses a separate contra-asset allowance to make later recoveries easy to follow. The net asset is $72,000. The allowance is not a liability for selling costs: those costs enter the measurement of expected net sale proceeds.

Here is the order of operations. First, finish the held-for-use work right up to the classification date: record depreciation through that date and, if there are signs of impairment, run the held-for-use impairment test. Then apply the held-for-sale model. That second step has no undiscounted cash flow test, so an asset that passed the held-for-use test can still need a held-for-sale write-down.

What counts as costs to sell? Only the incremental direct costs of the sale, such as broker commissions, legal and title transfer fees, and closing costs. Expected operating losses while you wait for a buyer are not costs to sell (ASC 360-10-35-38).

Stop depreciation and limit later recoveries

Harbor records no depreciation while the machine remains properly classified as held for sale. At the next reporting date, assume fair value rises to $83,000 and estimated selling costs remain $4,000. The revised net amount is $79,000.

Increase carrying amount from $72,000 to $79,000 by recognizing a $7,000 recovery. Debit the valuation allowance $7,000 and credit Gain on Recovery of Asset Held for Sale $7,000. The allowance falls from $18,000 to $11,000.

Now take a separate scenario: fair value less selling costs rises to $95,000. Harbor cannot report $95,000. The ceiling is the $90,000 carrying amount on the date the machine was classified as held for sale, so the maximum recovery is the full $18,000 write-down. Harbor debits the valuation allowance $18,000 and credits Gain on Recovery of Asset Held for Sale $18,000. The remaining $5,000 ($95,000 − $90,000) is not recognized until the machine is actually sold.

A later gain cannot exceed cumulative losses previously recognized under the held-for-sale measurement model. It does not reverse an impairment recorded while the asset was held for use. The current rules are ASC 360-10-35-43 (lower-of measurement and no depreciation) and ASC 360-10-35-40 (the recovery cap). The historical source is FASB Statement 144, paragraphs 34–37.

Common mistakes and reporting distinctions

Watch for these mistakes:

• Subtracting selling costs twice. Calculate fair value less selling costs once.
• Deducting selling costs for an asset held for use. The held-for-use loss is carrying amount minus fair value, with no selling costs.
• Stopping depreciation too early. Stop only once every held-for-sale criterion is met.
• Writing the asset above the ceiling. A recovery is limited to earlier held-for-sale losses, even when the expected sale price rises a lot.

A held-for-sale asset is also shown separately on the balance sheet, not mixed in with other PP&E (ASC 360-10-45-14).

An asset being sold is not automatically a discontinued operation. The simple machinery losses and recoveries here belong in continuing operations. Whether a larger disposal qualifies for discontinued-operations presentation is a separate analysis outside this lesson.

If a sale is delayed, reassess whether the asset still meets every held-for-sale criterion. Do not assume it can stay in that category indefinitely just because management still hopes to sell it. If it no longer qualifies, it moves back to held for use, as shown in the next section.

What happens if the company decides not to sell?

If management changes its mind, the asset goes back to held for use. Under ASC 360-10-35-44, it is measured at the lower of two amounts:

• Its carrying amount before it was classified as held for sale, minus the depreciation it would have recorded if it had stayed held for use the whole time.
• Its fair value on the date of the decision not to sell.

Hypothetical example. Go back to Harbor’s machine right after the $18,000 write-down, when it was carried at $72,000. Six months later, Harbor decides to keep the machine. Had it stayed held for use, it would have recorded $6,000 of depreciation over those six months. Fair value on the decision date is $70,000.

Option 1: $90,000 − $6,000 = $84,000.
Option 2: Fair value = $70,000.
The lower amount is $70,000.

Harbor reduces the machine from $72,000 to $70,000 and reports a $2,000 loss in income from continuing operations. Depreciation then restarts, based on $70,000 over the remaining useful life. This adjustment can be a loss or a gain, depending on which amount is lower.

Key takeaways

• Held for use: when impairment indicators exist, test recoverability with undiscounted cash flows. Only if the asset fails that test is an impairment loss recognized for any excess of carrying amount over fair value. Continue depreciation using the revised basis, and do not reverse the impairment loss (ASC 360-10-35-21).
• Held for sale: carry at the lower of carrying amount or fair value less costs to sell, and stop depreciating.
• A plan to sell is not enough. All six criteria in ASC 360-10-45-9 must be met.
• Held-for-sale recoveries are capped at earlier held-for-sale write-downs.
• If the company decides not to sell, remeasure at the lower of the adjusted carrying amount or fair value.

Impairment is one piece of PP&E accounting. To work through the full chapter with Professor Farhat, continue in the Intermediate Accounting course, or start with the free sample course.

Interactive exercise on impairment loss recovery

Apply the U.S. GAAP rules for long-lived assets held for use and held for sale. The four questions cover the revised carrying amount, when depreciation stops, the limit on a later recovery, and where the gain or loss appears in earnings.

Practice questions with explained answers

1. A qualifying held-for-sale asset has a $48,000 carrying amount, $45,000 fair value, and $3,000 selling costs. What amount is reported?

Answer: $42,000: $45,000 − $3,000. The write-down is $6,000. Do not stop at the $45,000 fair value.

2. After that write-down, net fair value rises to $46,000. What recovery is allowed?

Answer: $4,000, bringing the asset from $42,000 to $46,000. This is within the $6,000 prior held-for-sale loss.

3. Equipment still held for use was impaired last year. This year its fair value rises. Can the company use the held-for-sale recovery rule?

Answer: No. The asset’s actual classification controls. A held-for-use impairment is not reversed under U.S. GAAP merely because market value improves.

4. Equipment held for use has a $60,000 carrying amount, $55,000 of undiscounted future cash flows, a $50,000 fair value, and $2,000 of estimated selling costs. What is the impairment loss?

Answer: $10,000. The equipment fails the recoverability test because $55,000 is less than $60,000. The loss is $60,000 − $50,000 = $10,000. Ignore the $2,000 selling costs, because the asset is held for use, not held for sale. Review the full test in the asset impairment test guide.

Frequently asked questions

Does depreciation stop when management first discusses selling?

Answer: No. It stops when the asset meets the held-for-sale classification requirements.

Is fair value less costs to sell the same as fair value?

Answer: No. The first amount deducts qualifying selling costs. That difference affects the write-down.

Are held-for-sale assets written up freely?

Answer: No. Recovery is limited to prior losses recognized under the held-for-sale model. An earlier held-for-use loss is not restored.

Can an impairment loss on an asset held for use ever be reversed?

Answer: Not under U.S. GAAP. The reduced carrying amount becomes the new cost basis. IFRS is different: under IAS 36, an impairment loss on an asset other than goodwill can be reversed, but only up to the carrying amount the asset would have had, after depreciation, if no impairment had been recorded.

What counts as costs to sell?

Answer: Only incremental direct costs of the sale, such as broker commissions, legal and title transfer fees, and closing costs. Expected operating losses while the asset waits for a buyer are not included.

Is every asset held for sale a discontinued operation?

Answer: No. Selling a machine is usually just a disposal, reported in continuing operations. Discontinued operations presentation applies only when the disposal is a component of the business that represents a strategic shift with a major effect on operations and results.

What if the company decides not to sell after all?

Answer: The asset goes back to held for use. It is measured at the lower of its pre-classification carrying amount, reduced for the depreciation it would have recorded, or its fair value on the date of the decision. The adjustment goes in income from continuing operations.

Sources and lesson context

This original guide supports Wiley Intermediate Accounting, section 10.2: Impairments. Its examples and practice questions were created for this article. Current U.S. GAAP is in the FASB Accounting Standards Codification, particularly Topic 360. The paragraphs used in this guide are ASC 360-10-45-9 (held-for-sale criteria), ASC 360-10-45-14 (balance sheet presentation), ASC 360-10-45-15 (disposals other than by sale), ASC 360-10-35-38 (costs to sell), ASC 360-10-35-40 (the recovery cap), ASC 360-10-35-43 (measurement and no depreciation), ASC 360-10-35-44 (changes to a plan of sale), ASC 360-10-35-21 (impairment indicators), ASC 360-10-35-23 (asset grouping), and ASC 360-10-35-47 (depreciation before planned abandonment). Linked Statement 144 material is historical background, not a substitute for current Codification text.

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