How is the loss from an asset impairment calculated?

How is the loss from an asset impairment calculated?

• A. Recoverable amount plus carrying amount
• B. Carrying amount minus fair value
• C. Recoverable amount minus carrying amount
• D. Fair value minus cost to dispose

Answer: (C)

The calculation of loss from an asset impairment involves determining the recoverable amount and comparing it to the carrying amount of the asset. The correct approach specifies that the loss is calculated by subtracting the carrying amount from the recoverable amount. In this context, the recoverable amount is the higher of the asset's fair value less costs to sell and its value in use. When the carrying amount exceeds the recoverable amount, an impairment loss is recognized. Therefore, the formula used is: Impairment Loss = Recoverable Amount - Carrying Amount. When this results in a negative figure, it indicates the extent of impairment, thereby confirming that option C reflects the right method for calculating the impairment loss. This understanding emphasizes the need to assess both the carrying amount and the recoverable amount to identify the asset's impairment correctly.

The calculation of loss from an asset impairment involves determining the recoverable amount and comparing it to the carrying amount of the asset. The correct approach specifies that the loss is calculated by subtracting the carrying amount from the recoverable amount.

In this context, the recoverable amount is the higher of the asset's fair value less costs to sell and its value in use. When the carrying amount exceeds the recoverable amount, an impairment loss is recognized. Therefore, the formula used is:

Impairment Loss = Recoverable Amount - Carrying Amount.

When this results in a negative figure, it indicates the extent of impairment, thereby confirming that option C reflects the right method for calculating the impairment loss.

This understanding emphasizes the need to assess both the carrying amount and the recoverable amount to identify the asset's impairment correctly.