Impairment of Equity Investment Using Equity Method

Hard Intercorporate Investments Impairment Of Investments

ABC Holdings, a publicly traded company, acquired a 30% stake in XYZ Industries for $10 million. The investment was classified as an equity investment and ABC uses the equity method to account for its share of XYZ's earnings. After two years, due to a significant decline in the overall market and adverse operational changes at XYZ, ABC’s management believes that the fair value of its investment is now only $6 million. In accordance with IFRS guidelines for impairment, ABC is considering whether it should recognize an impairment loss on its investment in XYZ.

Under IFRS, when should an impairment loss be recognized on an equity investment recorded using the equity method?

An impairment loss should be recognized when the fair value of the investment is less than its carrying value, irrespective of whether the decline is temporary or not.

An impairment loss should be recognized only if the decline in fair value is considered other than temporary.

An impairment loss is not recognized for equity investments recorded using the equity method.

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