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Which one of the following is not an indicator of impairment?
A. The carrying amount of an entity’s net assets is lower than the entity’s number of shares in issue multiplied by its share price
B.The carrying amount of an entity’s net assets is higher than the entity’s number of shares in issue multiplied by its share price
Could you possibly explain this statement as well?
Thanks a bunch! 🙂
Hi,
The answer is B. The number of shares multiplied by the share price gives the market value of the equity in the business.
If the net assets are higher than the net assets of the entity then we should at least look at why they currently are higher through an impairment test, as the market is saying that they are worth less than the current book value of the net assets, and the market value of the shares is a reflection of the true worth of the equity.
Thanks
Thanks alot for the reply. May god bless you in all your endeavours! I hope FR goes well this thursday 🙂 !
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