Which of the following statements is true about assessing recoverability of an asset?
A)If the sum of the undiscounted cash flows exceeds the carrying value of the asset,then the asset is impaired.
B)If the sum of the discounted cash flows exceeds the carrying value of the asset,then the asset is impaired.
C)If the sum of the undiscounted cash flows exceeds the carrying value of the asset,then the asset is not impaired.
D)If the sum of the discounted cash flows exceeds the carrying value of the asset,then the asset is not impaired.

Question

Quizplus · Accepted Answer

According to accounting standards, to assess the recoverability of an asset, a company needs to compare the carrying value of the asset with the undiscounted cash flows expected to be generated by the asset. If the undiscounted cash flows are greater than or equal to the carrying value, the asset is not impaired. Therefore, statement C is true. The other options are incorrect as they suggest that impairment is determined by comparing the discounted cash flows with the carrying value of the asset, which is not the correct approach.

Which of the Following Statements Is True About Assessing Recoverability