Which of the following is the first step in recognising an impairment loss for a cash- generating unit?

Question

Quizplus · Accepted Answer

The first step in recognising an impairment loss for a cash-generating unit is to ascertain the recoverable amount of the relevant cash-generating unit. This involves estimating the future cash flows expected to be generated from the unit, and comparing it to the carrying amount of the net assets (including goodwill) of the unit. If the estimated recoverable amount is lower than the carrying amount, then an impairment loss needs to be recognised. Only after ascertaining the recoverable amount can the carrying amount be compared and an impairment loss recognised if necessary (option A). Option C is incorrect as recognition of the impairment loss is only done if the recoverable amount is lower than the carrying amount. Option D is incorrect as there is a specific process that needs to be followed when recognising an impairment loss for a cash-generating unit.

Which of the Following Is the First Step in Recognising