Why this is mistaken
Why the model fails
The two comparisons have different roles. Beacon's $8,000 recoverability shortfall causes the screen to fail. The $16,000 difference between $60,000 carrying amount and $44,000 fair value measures the loss.
Passing-case diagnostic
Change undiscounted cash flows to $62,000 while keeping fair value at $44,000. Within the bounded held-and-used model, the screen passes and no impairment loss is recognized. Someone who still records $16,000 is using the measurement input without first passing through the recognition gate.
Corrective rule
Write the decision sequence before substituting numbers: screen first; if and only if it fails, measure carrying amount less fair value.
Where to watch
When this mistake may appear
- Carrying amount, undiscounted cash flows, and fair value are all supplied.
- The recoverability comparison produces one difference and the measurement comparison produces another.
Check your work
Your work may contain this mistake if:
- Reports carrying amount less undiscounted cash flows as the loss.
- Uses fair value before determining whether the recoverability screen failed.
- Records a loss after a passed screen solely because fair value is below carrying amount.