ACCA Strategic Business Reporting (SBR) Practice Exam

Which of the following is NOT an indicator of impairment?

1. Significant fall in market value

2. Increased market interest rates

3. Increase in business profitability

4. Evidence of obsolescence or physical damage

The correct answer is: Increase in business profitability

The correct answer indicates that an increase in business profitability is not an indicator of impairment. Impairment reflects a decline in the value of an asset, meaning that there are signs suggesting an asset's carrying amount may not be recoverable. In contrast, an increase in business profitability typically signals that an asset is actually performing well or may even be generating increased cash flows. This situation would not lead to an assessment of impairment because the asset's recoverable amount would likely be equal to or exceed its carrying amount. The other options present clear indicators of potential impairment. A significant fall in market value suggests that the asset might not be worth its recorded value in the financial statements, triggering an impairment review. Increased market interest rates could indicate that the discount rate used for valuing future cash flows has risen, further hinting that the asset’s recoverable amount might be lower than its carrying amount. Lastly, evidence of obsolescence or physical damage directly affects an asset's value and usefulness, also calling for an impairment assessment.