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Hello.
There are two correct impairment indicators which are confusing me:
1.) ‘The carrying amount of the net assets of the entity is MORE than its market capitalisation’
2.) ‘Carrying amount of an entity’s net asset is LOWER than the entity’s number of share in issue multiplied by its share price’
I thought ‘entity’s no. of shares x its share price’ is market cap.
So then, I thought indicator #2 has to be HIGHER/MORE instead of lower in order to be true.Would you please explain me thoroughly why those two are correct?
Hi,
The first statement is correct as if the carrying amount is less than the market value then the market value is showing the latest value of the business and so showing it to be less than the book value and hence impaired.
I’m not sure where you’ve seen the second as it should say higher and not lower for there to be a potential impairment.
Thanks
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