In impairment testing, which statement correctly describes the recoverable amount?

In impairment testing, which statement correctly describes the recoverable amount?

• A. The higher of fair value less costs of disposal and value in use
• B. The lower of fair value less costs of disposal and value in use
• C. The carrying amount
• D. Net realizable value

Answer: (A)

In impairment testing, the recoverable amount is the higher of fair value less costs of disposal and value in use. Fair value less costs of disposal is what you might obtain from selling the asset, minus the costs of selling it. Value in use is the present value of the future cash flows expected from using the asset. Taking the higher of these two gives the amount below which the asset cannot be impaired, ensuring you only reduce the carrying amount if it exceeds this recoverable value. Net realizable value is a concept used for inventories, not for impairment of long‑lived assets. The carrying amount is the asset’s current book value, which is compared against the recoverable amount but is not itself the recoverable amount.

In impairment testing, the recoverable amount is the higher of fair value less costs of disposal and value in use. Fair value less costs of disposal is what you might obtain from selling the asset, minus the costs of selling it. Value in use is the present value of the future cash flows expected from using the asset. Taking the higher of these two gives the amount below which the asset cannot be impaired, ensuring you only reduce the carrying amount if it exceeds this recoverable value. Net realizable value is a concept used for inventories, not for impairment of long‑lived assets. The carrying amount is the asset’s current book value, which is compared against the recoverable amount but is not itself the recoverable amount.