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Impairment

Accounting

Impairment occurs when an asset's carrying amount exceeds the amount expected to be recovered through use or sale.

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Impairment is the accounting condition that exists when an asset’s carrying amount is greater than the amount expected to be recovered from using or selling it.

When impairment exists, the asset is overstated on the books and must usually be reduced through an Impairment Loss or related Write-Down.

Core Logic

The central comparison is:

$$ \text{Carrying Amount} > \text{Recoverable Amount} $$

If that condition holds, the asset is impaired.

What Can Trigger Impairment

Common indicators include:

  • damage or obsolescence
  • weak cash-flow performance
  • major adverse market changes
  • regulatory or technological shifts
  • acquisition assumptions that no longer hold

Goodwill and other long-lived assets are common impairment subjects.

Why Impairment Matters

Impairment protects financial reporting from overstating asset values. It forces management to recognize that the recorded balance can no longer be justified by expected economic benefit.

That is why impairment sits at the intersection of valuation, prudence, and earnings quality.

Impairment vs Depreciation

Depreciation is systematic and expected. Impairment is a separate downward reassessment when value falls faster or farther than the normal allocation schedule would capture.

FAQs

What does impairment mean in accounting?

It means an asset is recorded above the amount the business expects to recover through use or sale.

Is impairment always permanent?

Often yes in practical discussion, but reversal rules depend on the asset type and the accounting framework being applied.

Does impairment create a loss?

Yes. When impairment is recognized, it usually results in an impairment loss expense.
Revised on Monday, May 18, 2026
Goodwill Impairment
Impairment Loss