ASC 360 Property, Plant and Equipment: Cost, Depreciation and Impairment Under US GAAP

For capital-intensive businesses, property, plant and equipment dominates the balance sheet, and ASC 360 sets the U.S. rules. It covers how tangible long-lived assets are capitalised, depreciated, and tested for impairment. Two features set US GAAP apart from IFRS: there is no revaluation model, and impairment follows a two-step test with no reversal. This guide covers recognition, depreciation, and the long-lived asset impairment model.

How is property, plant and equipment recognised and measured?

Under ASC 360, an item of property, plant and equipment is recorded at its historical cost, which includes the purchase price and all costs directly attributable to bringing the asset to the condition and location necessary for its intended use — delivery, installation, testing, and directly related professional fees. For self-constructed assets, cost includes directly attributable construction costs and, under ASC 835, interest capitalised during construction of a qualifying asset.

A defining feature of US GAAP is that, after recognition, PP&E is carried at historical cost less accumulated depreciation and any impairment. There is no option to revalue assets upward to fair value, in sharp contrast to IFRS, which permits a revaluation model. This means U.S. balance sheets reflect depreciated historical cost, which can understate the current value of long-held appreciating assets such as land and buildings, a key difference from IFRS reporters explored in our IFRS hub.

How does depreciation work under ASC 360?

Depreciation allocates the depreciable cost of an asset — its cost less salvage value — systematically over its useful life, using a method that reflects the pattern in which the asset’s economic benefits are consumed. US GAAP permits straight-line, accelerated methods such as declining balance, and units-of-production, with straight-line being most common for financial reporting. The useful life and salvage value are estimates that should reflect the entity’s expected use of the asset.

While US GAAP permits component depreciation — depreciating significant parts of an asset separately — it does not require it as firmly as IFRS does, and in practice U.S. companies componentise less extensively than IFRS reporters. Land is not depreciated, as it has an indefinite life, while buildings and equipment are. Depreciation begins when the asset is ready for its intended use. These mechanics resemble IFRS but differ in the degree of required componentisation, a subtle but real difference between the frameworks.

What is the long-lived asset impairment model?

ASC 360 contains a distinctive two-step impairment model for long-lived assets held and used, which differs markedly from IFRS. Step one is a recoverability test: the asset (or asset group) is impaired only if its carrying amount exceeds the sum of the undiscounted future cash flows expected from its use and eventual disposal. This undiscounted threshold is a high bar, meaning many assets pass step one even when their discounted value is below carrying amount.

If step one indicates impairment, step two measures the loss as the excess of carrying amount over fair value — here using fair value, not undiscounted cash flows. The use of an undiscounted cash flow screen in step one is unique to US GAAP and means impairments are recognised less readily than under IFRS, which compares carrying amount directly with a discounted recoverable amount. This is a significant framework difference, explored from the IFRS side in our IFRS hub.

How are asset groups defined for impairment?

Many long-lived assets do not generate cash flows independently, so ASC 360 tests them within asset groups — the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. Identifying the appropriate asset group is a critical judgment, because it determines the level at which the recoverability test is applied and where any impairment falls. Group too broadly and impairments can be masked; group too narrowly and they may surface inappropriately.

The asset group concept under US GAAP is broadly analogous to the cash-generating unit under IFRS, though the impairment mechanics applied to it differ. For businesses with interrelated assets — a manufacturing plant, a network, a chain of locations — defining asset groups faithfully to how cash flows are actually generated is essential. The judgment must reflect the economics of the business rather than being engineered to achieve a favourable impairment outcome, a discipline auditors scrutinise closely.

How are assets held for sale treated?

ASC 360 has separate rules for long-lived assets to be disposed of by sale. When an asset (or disposal group) meets the criteria to be classified as held for sale — management commits to a plan, the asset is available for immediate sale, the sale is probable within a year, and it is actively marketed at a reasonable price — it is measured at the lower of its carrying amount and fair value less costs to sell, and depreciation ceases.

Classifying an asset as held for sale changes its measurement and presentation: it is shown separately on the balance sheet and is no longer depreciated. If the fair value less costs to sell is below carrying amount, a loss is recognised, and unlike the held-and-used impairment, this measurement can be subsequently increased (a gain recognised) if fair value rises, though not above the original carrying amount. The held-for-sale rules ensure assets being sold are measured at their realisable value rather than continuing to depreciate as if still in use.

How are subsequent costs and capitalisation decisions handled?

After an asset is in service, costs incurred on it are capitalised only if they extend its useful life, increase its capacity, or improve its efficiency or quality of output — in other words, if they provide benefits beyond the original assessment. Routine repairs and maintenance that simply keep the asset in working order are expensed as incurred. The distinction between a capital improvement and a revenue repair is a recurring judgment that affects the timing of expense recognition and the carrying amount of the asset.

US GAAP also addresses major overhauls and replacements: when a significant component is replaced, the cost of the new component is capitalised and the carrying amount of the replaced component is derecognised, provided the component approach is used. Setting clear capitalisation thresholds and policies by asset class, and applying them consistently across the organisation, is important for both accuracy and comparability. Inconsistent capitalisation decisions distort the asset base and depreciation, and they are a common source of audit findings, reflecting the need for disciplined fixed-asset accounting.

How does asset retirement obligation accounting interact with PP&E?

Many long-lived assets carry obligations to dismantle, remove, or restore them at the end of their lives — decommissioning a facility, restoring a site, or removing equipment. Under ASC 410, these asset retirement obligations are recognised as a liability at fair value when incurred, with a corresponding increase in the carrying amount of the related long-lived asset. The capitalised cost is then depreciated over the asset’s life, and the liability accretes over time toward its settlement amount.

This interaction means the cost of a long-lived asset under ASC 360 can include the present value of its eventual retirement obligation, increasing both the asset and a liability on the balance sheet. For energy, mining, and industrial businesses with significant decommissioning obligations, asset retirement obligation accounting is a material part of PP&E accounting, affecting the asset base, depreciation, and the recognition of accretion expense. Understanding how retirement obligations are capitalised into the asset is part of complete property, plant and equipment accounting under US GAAP.

Why does the absence of revaluation matter for analysis?

The fact that US GAAP carries property, plant and equipment only at depreciated historical cost, with no revaluation option, has real consequences for analysis. For companies holding long-lived appreciating assets — land, buildings, and certain infrastructure — the balance sheet can substantially understate the current value of those assets, since they remain at historical cost less depreciation regardless of how much their market value has risen. This understatement of asset values affects book value and returns on assets.

An IFRS reporter using the revaluation model, by contrast, may carry such assets closer to current value, making cross-framework comparison of asset bases and returns misleading without adjustment. Analysts of asset-heavy US GAAP companies often look beyond the balance sheet to estimate the current value of property holdings, particularly in real estate and infrastructure. Recognising that US GAAP balance sheets reflect historical cost, not current value, is essential for interpreting them correctly, a point developed in our IFRS hub from the revaluation perspective.

How should companies govern fixed-asset accounting?

Sound fixed-asset accounting under ASC 360 depends on disciplined governance: a documented capitalisation policy with clear thresholds by asset class, a maintained fixed-asset register, periodic review of useful lives and salvage values, a process to identify impairment indicators, and timely derecognition of disposed or retired assets. For capital-intensive businesses, the fixed-asset register can contain thousands of items, and keeping it accurate is essential to correct depreciation and impairment.

Governance also means consistency across the organisation, so that similar assets are capitalised and depreciated on the same basis, preserving comparability in the consolidated accounts. Auditors frequently focus on capitalisation decisions, useful-life assumptions, and the completeness of the asset register, so a well-controlled process reduces both audit effort and the risk of misstatement. Treating fixed-asset accounting as a controlled, ongoing discipline rather than a periodic clean-up is what keeps the largest asset on many balance sheets reliably stated, in keeping with the rigour this hub emphasises throughout.

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