Final answer:
In the recoverability test for asset impairment, the estimated future cash flows should be calculated on an undiscounted basis to determine if the carrying amount of the asset can be recovered. Option C is correct..
Step-by-step explanation:
In the context of a recoverability test, the estimated value of future cash flows should be C. undiscounted. This approach is part of the impairment test for long-lived assets, where a company evaluates whether the carrying amount of an asset can be recovered through the sum of the future net cash flows that the asset is expected to generate. If the undiscounted cash flows are less than the carrying amount of the asset, then an impairment loss may need to be recognized. The cash flows are not discounted in this initial step because the purpose is to determine whether any potential impairment exists, not to measure the amount of impairment. If and when impairment is deemed necessary, then the fair value of the asset is calculated, which may involve discounted cash flows.
In the recoverability test, the estimated value of future cash flows should be discounted. This means that the future cash flows are adjusted to reflect their present value. Discounting the cash flows takes into account the time value of money, as money earned in the future is worth less than money earned today. By discounting the cash flows, it helps determine if the project or investment is worth pursuing