An impairment loss is recognized when carrying amount exceeds recoverable amount. Which option reflects this condition?

• A. Carrying amount > recoverable amount
• B. Carrying amount < recoverable amount
• C. When cash flows increase
• D. When asset fully depreciated

Answer: (A)

Impairment occurs when the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs of disposal and its value in use. When carrying amount is greater than recoverable amount, an impairment loss is recognized for the difference, and the asset’s carrying amount is reduced to the recoverable amount. If the carrying amount is equal to or less than the recoverable amount, no impairment is recognized.

In this scenario, the condition described is exactly carrying amount greater than recoverable amount. The other situations don’t indicate impairment: carrying amount less than recoverable amount means no impairment; changes in cash flows don’t determine impairment on their own; and an asset being fully depreciated doesn’t by itself trigger impairment unless the carrying amount exceeds the recoverable amount.