CPA Financial Reporting Practice Test 2026 - Free Financial Reporting Practice Questions and Study Guide

An asset is considered impaired when its carrying value exceeds the amount that is expected to be recovered through its use or sale. Various indicators can signal that an asset may be impaired, including declines in market value, reduced cash flow generation, and increased operational costs.

A consistent rise in asset value, on the other hand, suggests that the asset is performing well and is likely retaining or increasing its value. This rising value usually indicates a healthy condition or performance of the asset, making it an unlikely candidate for impairment. The other indicators represent negative conditions that suggest potential impairment, while a consistent rise in asset value clearly contradicts the premise of impairment, reflecting the opposite scenario.