Impairment Recognition of Equity Method Investment

Very Hard Intercorporate Investments Impairment Of Investments

ABC Corporation owns 30% of XYZ Inc., a publicly traded company, and accounts for this investment using the equity method. At the end of the fiscal year, ABC Corporation noted a decline in the market value of its investment in XYZ Inc. due to an unexpected downturn in the tech sector, resulting in a 40% drop in XYZ's share price. However, no significant changes occurred in XYZ's operational performance or long-term forecasts. Given these circumstances, management at ABC Corporation must assess the potential for impairment of its investment in XYZ Inc.

According to IFRS guidelines, under what circumstances should ABC Corporation recognize an impairment loss on its investment in XYZ Inc.?

ABC Corporation must recognize an impairment loss if the decline in investment value is considered permanent.

ABC Corporation is not required to recognize an impairment loss, as the decline in market price does not necessarily reflect an impairment of the underlying business.

ABC Corporation should recognize an impairment loss immediately due to the significant drop in share price, regardless of the underlying business’s performance.

Hint

Submitted2.1K

Correct1.7K

% Correct81%