When a company determines that estimated future cash flows from an asset are less than the book value of the asset, it records:
A) an asset impairment gain, if the value of the cash flows exceeds the asset's book value.
B) an asset impairment loss, if the value of the cash flows exceeds the asset's book value.
C) an asset impairment gain, if the asset's book value exceeds the value of the cash flows.
D) an asset impairment loss, if the asset's book value exceeds the value of the cash flows.

Question

Quizplus · Accepted Answer

When a company determines that estimated future cash flows from an asset are less than the book value of the asset, it records an asset impairment loss if the asset's book value exceeds the value of the cash flows. This loss reflects the decrease in the value of the asset and is recorded as an expense, reducing the carrying value of the asset on the balance sheet. An impairment gain would only be recorded if the value of the cash flows exceeds the book value of the asset, which is not the case here.

When a Company Determines That Estimated Future Cash Flows from an Asset