Impairment Treatment of Equity Investment

Easy Intercorporate Investments Impairment Of Investments

A company, XYZ Corp., holds a 40% equity investment in a manufacturing company, ABC Inc. Due to a significant downturn in the manufacturing sector, the fair value of the investment in ABC Inc. has declined below its carrying value on XYZ Corp.'s balance sheet. XYZ Corp. assesses whether the impairment is other-than-temporary according to the relevant accounting standards.

What is the correct accounting treatment for the impairment of this investment?

The investment should be written down to its fair value, and a loss recognized in the income statement.

The investment should continue to be reported at cost until it is sold.

No action is needed unless the fair value remains below carrying value for more than one year.

Hint

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