**Case Study: Accounting for Non-Current Assets Impairment**

**Introduction:** Non-current assets, such as property, plant, and equipment, are significant components of a company's balance sheet and play a crucial role in generating future economic benefits. However, changes in market conditions or internal factors may lead to impairment, requiring companies to recognize a loss in the value of these assets. Understanding the accounting for non-current assets impairment is essential for accurate financial reporting and decision-making.

**Case Study:** Consider a manufacturing company that owns a fleet of delivery trucks used for transporting goods to customers. Due to changes in industry regulations and technological advancements, the company's management suspects that the carrying amount of its delivery trucks may exceed their recoverable amount. The company engages in a thorough assessment of non-current assets impairment to comply with accounting standards and provide transparent financial statements.

**Steps in Accounting for Non-Current Assets Impairment:**

1. **Identification of Impairment Indicators:** - Management identifies impairment indicators, such as significant declines in market value, changes in technology, or adverse changes in economic conditions, that may suggest a potential impairment of non-current assets. - In the case of the manufacturing company, changes in industry regulations and advancements in vehicle technology serve as impairment indicators for its fleet of delivery trucks.

2. **Determination of Recoverable Amount:** - The recoverable amount of an asset is the higher of its fair value less costs of disposal (FVLCOD) and its value in use (VIU). - Fair value less costs of disposal represents the amount obtainable from the sale of the asset in an arm's length transaction, while value in use represents the present value of expected future cash flows from the asset's continued use. - The manufacturing company engages external valuation experts to assess the fair value of its delivery trucks and performs internal projections to estimate the value in use based on future cash flow expectations.

3. **Comparison with Carrying Amount:** - Management compares the recoverable amount of the non-current asset with its carrying amount (i.e., its original cost less accumulated depreciation and any accumulated impairment losses). - If the recoverable amount is lower than the carrying amount, an impairment loss is recognized to reduce the asset's carrying amount to its recoverable amount.

4. **Recognition of Impairment Loss:** - An impairment loss is recognized in the income statement in the period in which it occurs. - The amount of impairment loss is calculated as the difference between the carrying amount of the asset and its recoverable amount. - In the case of the manufacturing company, if the fair value less costs of disposal or value in use of its delivery trucks is lower than their carrying amount, an impairment loss is recognized to reduce the carrying amount of the trucks on the balance sheet.

**Objective Question:**

Which step in accounting for non-current assets impairment involves comparing the recoverable amount of the asset with its carrying amount?

A) Identification of Impairment Indicators\ B) Determination of Recoverable Amount\ C) Comparison with Carrying Amount\ D) Recognition of Impairment Loss