Question

An impairment loss is calculated as the amount by which the:

Select one: a. carrying amount value of an asset exceeds its original cost b. carrying amount of an asset is lower than its recoverable amount c. carrying amount of an asset exceeds its recoverable amount d. book value of an asset is lower than its original cost

Answer 1

When an asset is purchased, it is recorded at its original cost (historical cost). Based on estimated useful life and estimated depreciation rate, the asset is depreciated annually and recorded at carrying value (carryinf value = Historical cost - Accumulated depreciation).
Impairment loss occurs when the carrying value of the asset is more than its recoverable amount,i.e. the amount that can be recovered if the asset is sold in the market at that time, also called the realizable value. The asset is impaired if this happens and recorded at new fair value(lower than its earlier carrying value).

Therefore, the correct option is C. Impairment loss occurs when carrying amount of asset is more than its recoverable amount.