A decision to sell a building, a plant or a business line changes how the asset is measured the moment the held-for-sale criteria are met. Depreciation stops, the asset is written down to a different benchmark, and it moves out of property, plant and equipment on the balance sheet. The classification rests on facts that are easy to overstate, which makes it a recurring audit judgment. This guide covers the criteria, the measurement rule, entries with illustrative numbers, and the audit work. For ordinary PP&E accounting see PP&E capitalization, depreciation and disposals, and for held-and-used impairment see the recoverability test worked example.
When is an asset classified as held for sale?
When all of the criteria are met at or before the balance sheet date. The criteria are in ASC 360-10-45-9, and ASU 2014-08 reproduces them:
- Management has the authority and intent to sell the asset, supported by a formal plan.
- The asset is available for immediate sale in its present condition.
- Management is actively seeking a buyer. A buyer does not need to be identified.
- The sale is probable, and transfer is expected to be completed within one year of classification.
- The asking price is reasonable relative to current fair value. A price above fair value indicates the asset is not available for immediate sale.
- Actions show the plan is unlikely to be significantly changed or withdrawn.
ASC 205-20 uses the same held-for-sale criteria to decide when a component of an entity is a discontinued operation, so the same facts drive both tests.
What if the criteria are met after year end?
The asset stays classified as held and used in the year-end statements. ASC 360-10-45-13 says that if the criteria are met after the balance sheet date but before the financial statements are issued or available to be issued, the asset continues to be classified as held and used, and the information required by ASC 205-20-50-1(a) is disclosed in the notes. The board approval or the signed listing agreement dated in February does not move a December asset. See subsequent events under ASC 855.
How is a held-for-sale asset measured?
At the lower of its carrying amount and fair value less cost to sell. The measurement applies in the period the criteria are met. Withum says that once the criteria are met, depreciation and amortization cease.
A write-down creates a loss. A later increase in fair value less cost to sell creates a gain. The adjusted carrying amount cannot exceed the carrying amount at the time of initial classification as held for sale, so the gain is capped at the cumulative loss previously recognized. Withum states the recovery is capped at the cumulative loss previously recognized.
Worked entries
Illustration only, with round numbers. A manufacturer decides to sell a warehouse. The criteria are met on December 31. Cost is $1,200,000 and accumulated depreciation is $200,000, so carrying amount is $1,000,000. Appraised fair value is $900,000 and estimated costs to sell are $40,000. Fair value less cost to sell is $860,000.
First, the reclassification. Depreciation stops from this date.
| Account | Debit | Credit |
|---|---|---|
| Assets held for sale | $1,000,000 | |
| Accumulated depreciation | $200,000 | |
| Buildings | $1,200,000 |
Second, the write-down to fair value less cost to sell. Lower of $1,000,000 and $860,000 is $860,000. The loss is $140,000.
| Account | Debit | Credit |
|---|---|---|
| Loss on assets held for sale | $140,000 | |
| Assets held for sale (valuation adjustment) | $140,000 |
The asset appears at $860,000.
Third, a later period. Fair value less cost to sell rises to $880,000. The gain is $20,000, below the $140,000 cap.
| Account | Debit | Credit |
|---|---|---|
| Assets held for sale (valuation adjustment) | $20,000 | |
| Gain on assets held for sale | $20,000 |
If it had risen to $1,100,000, the carrying amount would stop at $1,000,000 and the gain would be limited to $140,000.
Audit angle
The auditor tests classification, measurement and presentation.
- Classification evidence. Obtain the board or management approval, the broker listing or marketing plan, correspondence with prospective buyers and the asking price. Date each against the balance sheet date. A plan approved in January for a December year end fails the date test.
- Reasonable price. Compare the asking price to the appraisal and to comparable sales. A price well above fair value undercuts the immediate-sale criterion.
- One-year expectation. Look for delays, extended marketing periods, buyer financing conditions and anything that makes the sale less than probable.
- Depreciation. Recompute depreciation through the classification date and check that none was booked after it.
- Measurement. Recompute fair value less cost to sell. Test the appraisal inputs and the cost-to-sell estimate (broker commission, legal, transfer taxes). Use the guidance in fair value measurement when the valuation is complex.
- Reversal and gain cap. Check that any gain does not exceed the cumulative loss.
- Presentation. Check that the assets are presented separately from property, plant and equipment.
Common misstatements: classification based on intent alone, depreciation continuing after the criteria are met, cost to sell omitted, and a gain exceeding the cap.
CORAA prepares ready-to-review audit files for US CPA firms from QuickBooks books; you review and sign. See /us.
Sources
- Withum, Accounting for Real Estate Held for Sale: https://www.withum.com/resources/accounting-for-real-estate-held-for-sale/
- FASB, ASU 2014-08 (text of the held-for-sale criteria in ASC 360-10 and ASC 205-20): https://storage.fasb.org/ASU%202014-08.pdf
- EY, Financial reporting developments: Discontinued operations (revised April 2026; measurement at lower of carrying amount and fair value less cost to sell, ASC 360-10-45-13 on events after the balance sheet date): https://www.ey.com/content/dam/ey-unified-site/ey-com/en-us/technical/accountinglink/documents/ey-frdbb2878-04-03-2026.pdf
- Deloitte DART, Roadmap: Disposals of long-lived assets and discontinued operations, 3.6 Subsequent measurement while a disposal group is classified as held for sale (gain limited to cumulative loss): https://dart.deloitte.com/USDART/home/codification/presentation/asc205-20/roadmap-disposals-long-lived-assets-discontinued-operations/chapter-3-long-lived-assets-be/3-6-subsequent-measurement-while-a
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