When is impairment of a long-lived asset recorded?

• A. When carrying amount exceeds recoverable amount.
• B. When fair value increases above cost.
• C. When the asset is acquired.
• D. When the asset is disposed.

Answer: (A)

Impairment is recognized when the asset’s value on the books can’t be recovered from future use or sale. The recoverable amount is the higher of what you could get from selling the asset (fair value less costs of disposal) and its value in use (the present value of expected future cash flows from keeping it). If the asset’s carrying amount exceeds this recoverable amount, you write down the asset to the recoverable amount and record an impairment loss for the difference. This focuses on whether the asset can still justify its book value through future benefits, not on market price movements or simply when the asset is acquired or disposed.