Question

An impairment of property, plant, or equipment has occurred if

A) the estimated salvage value is less than the actual proceeds received on disposal.
B) the sum of the expected future net cash flows is less than the asset's carrying value.
C) the revised estimated useful life is less than the original estimated useful life.
D) the expected future cash outflows exceeds the asset's carrying value.

Answer 1

An impairment of property, plant, or equipment has occurred if the sum of the expected future net cash flows is less than the asset's carrying value.

Step-by-step explanation:

An impairment of property, plant, or equipment has occurred if

B) the sum of the expected future net cash flows is less than the asset's carrying value.

This means that if the future net cash flows expected to be generated by the asset are less than the carrying value (the value recorded on the company's balance sheet), then an impairment has occurred. In other words, the asset is no longer expected to generate sufficient cash flows to recover its carrying value, indicating that its value has been impaired.