What does impairment mean in terms of an asset's carrying value?

What does impairment mean in terms of an asset's carrying value?

• A. Increased above carrying value
• B. Reduced below carrying value
• C. Maintained at carrying value
• D. Exceeds recoverable amount

Answer: (B)

Impairment means the asset is worth less than its recorded carrying amount, so you reduce the carrying value to what the asset can realistically recover. When impairment happens, the carrying amount is written down to the recoverable amount, and the difference is recognized as an impairment loss in the income statement. The recoverable amount is the higher of fair value less costs to dispose and value in use. If the recoverable amount is below carrying value, an impairment is needed; if it’s equal to or above it, no impairment is recognised. Reversals can occur in some cases, but not beyond the asset’s original cost. This is why the correct interpretation is that impairment reduces the carrying value.

Impairment means the asset is worth less than its recorded carrying amount, so you reduce the carrying value to what the asset can realistically recover. When impairment happens, the carrying amount is written down to the recoverable amount, and the difference is recognized as an impairment loss in the income statement. The recoverable amount is the higher of fair value less costs to dispose and value in use. If the recoverable amount is below carrying value, an impairment is needed; if it’s equal to or above it, no impairment is recognised. Reversals can occur in some cases, but not beyond the asset’s original cost. This is why the correct interpretation is that impairment reduces the carrying value.