Question

What following guidelines must be followed subsequent to recognizing the loss from impairment? a) If fair value less costs to sell is used, report the asset at the lower of carrying amount or fair value less costs to sell.

b) If fair value less costs to sell is not used, report the asset at the lower of carrying amount or fair value less any costs to sell.
c) If an asset is held for use, report the asset at the lower of carrying amount or recoverable amount.
d) If an asset is held for sale, report the asset at the lower of carrying amount or fair value less costs to sell.

Answer 1

After recognizing impairment loss, an asset should be reported at the lower of its carrying amount or recoverable amount/fair value less costs to sell, depending on its intended use or sale.

Step-by-step explanation:

After recognizing an impairment loss, the following guidelines must be followed:

• If fair value less costs to sell is used: Report the asset at the lower of carrying amount or fair value less costs to sell.
• If fair value less costs to sell is not used: Report the asset at the lower of carrying amount or fair value, deducting any costs to sell.
• If an asset is held for use: Report the asset at the lower of the carrying amount or recoverable amount.
• If an asset is held for sale: Report the asset at the lower of carrying amount or fair value less costs to sell.

These steps ensure that the asset is not overstated on the balance sheet and reflects a realistic valuation after impairment.