What indicators would prompt impairment testing for non-financial assets, and how should impairment be accounted for?

• A. Impairment only when asset is fully obsolete
• B. Impairment not required for non-financial assets
• C. Impairment determined by internal audit
• D. Indicators include market declines, obsolescence, regulatory changes; test recoverable amount; recognize impairment loss if carrying amount exceeds recoverable amount; adjust depreciation and disclosures

Answer: (D)

Impairment testing for non-financial assets is prompted by indicators that the asset’s carrying amount may not be recoverable. Such indicators can come from outside the entity, like a market value decline or new regulatory changes, or from within, such as obsolescence, physical damage, or poorer-than-expected economic performance. When these indicators are present, you test by comparing the asset’s carrying amount with its recoverable amount—the higher of its value in use (the present value of expected future cash flows) and its fair value less costs to dispose. If the carrying amount exceeds the recoverable amount, you record an impairment loss for the excess in profit or loss, reduce the asset’s carrying amount accordingly, and adjust depreciation going forward to reflect the new carrying amount and remaining useful life. You also disclose the impairment in the notes. This approach captures both the triggers and the measurement and subsequent accounting. The other options are not correct because impairment is not limited to obsolescence alone, it is required when indicators exist, and it is not determined merely by internal audit.