What does the second step of the asset impairment process involve?

The second step of the asset impairment process is crucial for evaluating whether an asset’s carrying amount exceeds its recoverable amount. The correct choice involves determining the recoverable amount, which is the higher of an asset's fair value less costs of disposal or its value in use. By identifying the recoverable amount, organizations can assess whether an impairment loss needs to be recognized, which impacts their financial statements.

Performing an annual test for selected assets is a different aspect of asset management, relevant to specific circumstances, particularly for assets that have indefinite useful lives or goodwill. It does not specifically address the evaluation of recoverability in conjunction with the first step, which involves identifying indicators of impairment.

In summary, the focus of the correct answer on determining the recoverable amount directly ties into the process of assessing whether an asset may need to be impaired, making it a fundamental part of asset impairment analysis.