Under which condition is an asset considered impaired and subject to an impairment loss?

• A. The carrying amount exceeds the asset's future cash flows or its fair value.
• B. The asset's book value equals its fair value.
• C. The market price of similar assets has risen.
• D. Depreciation expense is greater than expected.

Answer: (A)

An asset is impaired when its carrying amount cannot be recovered from the expected future benefits it will generate. The recoverable amount is the greater of the asset’s fair value (or fair value less costs to sell) and its value in use. If the carrying amount exceeds this recoverable amount, an impairment loss must be recognized to bring the asset down to the recoverable amount. That’s why the condition where the carrying amount is higher than the asset’s anticipated future cash flows or its fair value signals impairment. If carrying value already equals fair value, there’s no impairment; a rising market price increases value rather than indicating impairment; and depreciation being higher than expected doesn’t by itself establish impairment, since impairment hinges on recoverable amount rather than depreciation expense.