Impairment of Investments in Financial Reporting

ABC Corporation holds a significant stake in XYZ Ltd., a publicly traded company. Recently, the market value of XYZ Ltd. declined due to poor financial performance and an unfavorable economic outlook. ABC Corporation must assess whether its investment in XYZ Ltd. is impaired in accordance with the relevant accounting standards. Impairment testing determines whether the carrying amount of an investment exceeds its recoverable amount.

According to the IFRS framework, if an investment is deemed to be impaired, the investor must recognize an impairment loss in its financial statements. However, several factors must be considered before concluding that an impairment has occurred.