Which method can be used to assess an impairment loss?

The correct method for assessing an impairment loss is by determining the recoverable amount, which is defined as the higher of fair value less costs of disposal and value in use. This approach aligns with IAS 36, which outlines the process for testing assets for impairment.

When assessing impairment, the recoverable amount is essential, as it provides a benchmark to compare against the asset's carrying amount. If the carrying amount exceeds the recoverable amount, an impairment loss is recognized. The two components considered for determining the recoverable amount provide a comprehensive view of an asset’s potential recovery:

1. Fair Value Less Costs to Sell: This reflects the amount that could be obtained from selling the asset in an orderly transaction between market participants, minus the costs directly attributable to the disposal.

2. Value in Use: This is calculated based on the present value of expected future cash flows from the asset, discounted to account for the time value of money.

By using the higher of these two measures, the standard ensures that an entity does not recognize an impairment loss that isn’t warranted, ultimately promoting a more cautious and conservative approach to asset valuation.

This choice accurately describes the prescribed method within the accounting standards, making it the correct answer in the context