When is impairment test required for long-lived assets?

• A. Never
• B. When events indicate impairment
• C. Only annual test
• D. Only at disposal

Answer: (B)

Impairment testing for long-lived assets is triggered by indicators that the asset’s carrying amount may not be recoverable. If events or changes in circumstances occur—such as physical damage, obsolescence, significant market or economic declines, or worse-than-expected performance—you assess the asset’s recoverable amount. The recoverable amount is the higher of fair value less costs to dispose and value in use. If the carrying amount exceeds this recoverable amount, you record an impairment loss for the difference. If no indicators are present, impairment testing isn’t required at that time. Note that some items, like goodwill or indefinite-lived intangible assets, may require annual impairment tests regardless of indicators, but for typical finite-lived long-lived assets, testing happens only when there are indications of impairment.