A triggering event for asset impairment may include which of the following?

A triggering event for asset impairment may include which of the following?

• A. Positive cash flows
• B. Lease renewal with stable cash flows
• C. Loss of a major tenant
• D. Improved market conditions

Answer: (C)

When assessing impairment, look for indicators that the asset’s future cash flows may be insufficient to recover its carrying amount. Losing a major tenant is a clear negative trigger because it directly reduces expected rental income, which lowers the asset’s recoverable amount and can lead to impairment. In contrast, signs like positive cash flows, a lease renewal that maintains current rents, or generally improved market conditions suggest the asset’s value and cash-flow prospects are intact or better, so they do not indicate impairment. If impairment indicators exist, you’d compare the asset’s carrying amount to its recoverable amount (the higher of fair value less costs to dispose and value in use). If the recoverable amount is lower, an impairment loss is recognized.

When assessing impairment, look for indicators that the asset’s future cash flows may be insufficient to recover its carrying amount. Losing a major tenant is a clear negative trigger because it directly reduces expected rental income, which lowers the asset’s recoverable amount and can lead to impairment.

In contrast, signs like positive cash flows, a lease renewal that maintains current rents, or generally improved market conditions suggest the asset’s value and cash-flow prospects are intact or better, so they do not indicate impairment.

If impairment indicators exist, you’d compare the asset’s carrying amount to its recoverable amount (the higher of fair value less costs to dispose and value in use). If the recoverable amount is lower, an impairment loss is recognized.