Which of the following is an indicator of asset impairment?

Which of the following is an indicator of asset impairment?

• A. A steady increase in market value
• B. Positive changes in the economic environment
• C. Significant declines in market value
• D. Stable interest rates

Answer: (C)

An indicator of asset impairment is a significant decline in market value. This means that if the market value of an asset drops considerably, it raises concerns about the asset's carrying value on the financial statements. When an asset's market value decreases significantly, it often suggests that the asset may not be able to generate the expected future cash flows that justify its carrying amount. This situation typically requires the company to assess whether the asset is impaired and to potentially recognize an impairment loss in the financial statements. In contrast, a steady increase in market value, positive changes in the economic environment, or stable interest rates typically indicate stable or improving conditions for assets, which are not signs of impairment. Instead, these factors suggest the possibility that the asset will maintain or increase its value, thereby reducing the likelihood of impairment.

An indicator of asset impairment is a significant decline in market value. This means that if the market value of an asset drops considerably, it raises concerns about the asset's carrying value on the financial statements.

When an asset's market value decreases significantly, it often suggests that the asset may not be able to generate the expected future cash flows that justify its carrying amount. This situation typically requires the company to assess whether the asset is impaired and to potentially recognize an impairment loss in the financial statements.

In contrast, a steady increase in market value, positive changes in the economic environment, or stable interest rates typically indicate stable or improving conditions for assets, which are not signs of impairment. Instead, these factors suggest the possibility that the asset will maintain or increase its value, thereby reducing the likelihood of impairment.