If carrying amount exceeds recoverable amount in impairment testing, what should be recognized?

• A. Impairment loss.
• B. Rollover to other asset.
• C. Deferred tax asset.
• D. No action.

Answer: (A)

When the carrying amount of an asset is higher than its recoverable amount, you must recognize an impairment loss. This brings the asset’s carrying amount down to the recoverable amount, and the loss is recorded in the income statement. The recoverable amount is the higher of fair value less costs to dispose and value in use, so this approach ensures the asset’s book value aligns with its expected future cash flows. If the asset has a prior revaluation, the impairment is first charged against the related revaluation surplus, with any excess affecting profit or loss. The other options aren’t correct because there’s no mechanism to roll impairment to another asset or skip recognizing it; noting, a deferred tax asset may arise from timing differences in some cases, but it isn’t the immediate action required by impairment testing.