In testing for recoverability of property, plant, and equipment, an impairment loss is required if the:
A)Asset's book value exceeds the undiscounted sum of expected future cash flows.
B)Undiscounted sum of its expected future cash flows exceeds the asset's book value.
C)Present value of expected future cash flows exceeds its book value.
D)None of the above is correct.

Question

Quizplus · Accepted Answer

An impairment loss is required if the asset's book value exceeds the undiscounted sum of expected future cash flows. This means that the asset is not expected to generate enough cash flow to recover its carrying value. In this situation, the company should record an impairment loss equal to the difference between the asset's carrying amount and its fair value.

In Testing for Recoverability of Property, Plant, and Equipment, an Impairment