Question

A loss due to impairment is recorded when: A) The asset is sold for less than...

A loss due to impairment is recorded when: A) The asset is sold for less than its book value. B) An asset’s fair value temporarily drops below its book value. C) An asset is damaged during operations. D) An asset’s fair value permanently drops below its book value

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Answer #1

Answer is option (D). An asset’s fair value permanently drops below its book value

Explanation;

As we know that Impairment of losses can occur due to following reasons:

1. Physical damage to the asset

2. A permanent reduction in market value

3. Legal issues against the asset

4. Early asset disposal.

Thus on the basis of above reasons, it is clear that option (D) is correct answer because a loss due to impairment is recorded when an asset’s fair value permanently drops below its book value.

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