Impairment of Intercorporate Investments

Very Hard Intercorporate Investments Impairment Of Investments

XYZ Corporation holds a 30% equity interest in ABC Ltd., acquired at a cost of $2 million. At year-end, all investments of ABC Ltd. experienced a significant decline, resulting in an estimated fair value of $1.2 million for the total investment held by XYZ Corporation. The equity method is applied for this investment.

Under IFRS, XYZ Corporation is required to assess whether this investment is impaired. In this scenario, which of the following statements is true regarding the impairment of the investment in ABC Ltd.?

XYZ Corporation recognizes an impairment loss of $800,000, reducing the carrying value of the investment to $1.2 million.

XYZ Corporation recognizes an impairment loss of $500,000, with the remaining carrying value being $1.5 million.

XYZ Corporation does not recognize any impairment loss as it continues to hold a significant influence over ABC Ltd.

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