Final answer:
U.S. GAAP requires companies to investigate potential impairment of plant, property, and equipment when indicators of impairment are present, ensuring accurate financial reporting.
Step-by-step explanation:
For plant, property, and equipment, U.S. GAAP requires the investigation of possible impairment to ensure these long-term assets are not carried at more than their recoverable amount.
An impairment loss is recognized if the carrying amount of an asset exceeds its recoverable amount, which is the higher of its fair value less costs of disposal and its value in use. This process is important to ensure that the financial statements present an accurate financial position of the company.
Indicators of impairment might include a significant decrease in market value, a significant change in the extent or manner in which the asset is being used, or operating losses associated with the asset.
When such indicators are present, companies must conduct impairment tests to determine whether an impairment loss should be recognized in the income statement, thereby reducing the carrying amount of the asset on the balance sheet.