Audit of Construction and Real Estate Industry Practice Test

Impairment testing under IFRS is triggered when there are indicators that an asset may be impaired. For real estate inventory and construction in progress, a key signal is a significant decline in market value or in the asset’s ability to sell. When such indicators are present, you assess using the impairment model that IFRS requires for assets: you compare the asset’s carrying amount with its recoverable amount, which is the higher of fair value less costs to dispose and value in use. If the carrying amount exceeds the recoverable amount, you recognize an impairment loss, reflecting that you cannot recover the asset’s value through use or sale.

This approach aligns with the recoverable amount concept used in IAS 36, rather than relying on other metrics like net realizable value for impairment in these cases. The other options describe indicators or measurement methods that don’t match how IFRS determines impairment for these assets.