Recognition of impairment for property, plant, and equipment is required if book value exceeds:
A) Fair value.
B) Present value of expected cash flows.
C) Undiscounted expected cash flows.
D) Accumulated depreciation.

Question

Quizplus · Accepted Answer

Recognition of impairment for property, plant, and equipment is required if the undiscounted expected cash flows are less than the carrying value of the asset. This means that the company is not expected to generate sufficient cash flows from the asset to recover its historical cost. Therefore, the carrying value (book value) of the asset must be written down to its fair value, which is determined based on market prices or appraisals. A and B are not correct because fair value and present value of expected cash flows are used to measure the amount of impairment loss, but not to determine whether an impairment exists. D is incorrect because accumulated depreciation is included in the carrying value of the asset, and does not affect the recognition of an impairment loss.

Recognition of Impairment for Property, Plant, and Equipment Is Required