CFA Practice Question

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CFA Practice Question

Which of the following is evidence that a loss due to value impairment must be recognized?

I. There is a forecast of a significant decline in the profitability of an asset.
II. There are adverse changes in the legal or business climate.
III. There are significant cost overruns.
Correct Answer: I, II and III

All these conditions are evidence of a decrease in the value of the asset and indicate that the carrying amount of the asset cannot be recovered and a loss on impairment should be recognized.

User Contributed Comments 9

User Comment
cong What are cost overruns?
reganbaha It happens when costs over-run
swisha ^^haha, very insightful. Thanks.
johntan1979 Actually I don't understand how cost overruns can or should impair an asset. Is it because during cost overruns, you typically overuse the asset (beyond ordinary usage)?
robertucla I'm not finding cost over runs in CFA text. Anybody?
vrutikap You overrun costs when you exceed your budget
jrojasut09 costs have an effect on the undiscounted cash flows. if a company costs go over budget and carrying value>cash flows, then an impairment must be recognized
UcheSam Cost overrun in terms of spending more on maintenance for continuous use of the asset. This reduces the expected future flow of revenue.
alexa821 i dont like the word "must" in this question..seems too strong to me
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