Understanding Impairment of Investments

A company named XYZ Corp owns a 25% investment in ABC Ltd., which it accounts for using the equity method. At the end of the reporting period, XYZ Corp reviews the financial health of ABC Ltd. and finds that its operational performance has significantly declined due to market conditions. As a result, XYZ Corp is considering whether there has been an impairment of its investment in ABC Ltd.

According to the accounting standards, an investment is considered impaired when the carrying amount exceeds the fair value of the investment, and this decline is determined to be other than temporary. XYZ Corp is keen to assess the impairment indicator relevant to their investment.