Leaving Certificate Accounting Theory Practice Test 2026 - Free Accounting Theory Practice Questions and Study Guide

Impairment means the asset’s expected future benefits have fallen below its carrying amount. When this happens, you write the asset down to its recoverable amount—the higher of its fair value less costs of disposal and its value in use—and you record the difference as an impairment loss in the income statement. This reduces both the asset’s book value and profit for the period.

For example, if the asset is carried at 100 and its recoverable amount is 70, you recognise a 30 impairment loss and carry the asset at 70. This loss shows up in profit or loss, not just in equity. The other options would either wrongly increase the asset, imply no income statement impact, or limit impairment effects to equity (which isn’t correct in the usual model).