If recoverable amount equals carrying value, what is the correct treatment for impairment?

If recoverable amount equals carrying value, what is the correct treatment for impairment?

• A. No impairment; carrying value remains unchanged
• B. Impairment is recognised
• C. The asset is derecognised
• D. A new impairment review must be started immediately

Answer: (A)

The key idea is that impairment only arises when an asset’s carrying amount is higher than what it can recover through use or sale. Recoverable amount is the higher of value in use and fair value less costs to dispose. If those two amounts are equal to the carrying amount, there is no extra loss to recognise, so the carrying amount stays the same. So, when recoverable amount equals carrying value, you do not recognise an impairment. There’s no derecognition, and you don’t need to start a new impairment review immediately unless new indicators appear or a scheduled review is due.

The key idea is that impairment only arises when an asset’s carrying amount is higher than what it can recover through use or sale. Recoverable amount is the higher of value in use and fair value less costs to dispose. If those two amounts are equal to the carrying amount, there is no extra loss to recognise, so the carrying amount stays the same.

So, when recoverable amount equals carrying value, you do not recognise an impairment. There’s no derecognition, and you don’t need to start a new impairment review immediately unless new indicators appear or a scheduled review is due.