In testing for recoverability of an operational asset, 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 these.

Question

Quizplus · Accepted Answer

According to accounting standards, an impairment loss is required when an asset's carrying value (book value) exceeds the undiscounted sum of expected future cash flows. This indicates that the asset is not expected to generate enough future cash flows to recover its carrying value. Therefore, option A is the correct choice. Option B and C are incorrect as they state the opposite scenario where the future cash flows exceed the asset's carrying value. Option D is also incorrect as one of the choices must be correct.

In Testing for Recoverability of an Operational Asset, an Impairment