Definition
Impairment
Impairment is the write-down of an asset's carrying value when its recoverable amount falls below what is recorded on the balance sheet.
Under Ind AS 36, a company must test assets for impairment when there are indicators of a decline in value, and test goodwill and indefinite-life intangibles at least annually. If the recoverable amount is lower than the carrying value, the difference is charged to profit as an impairment loss.
Impairments are non-cash but reduce reported profit and asset values, often signalling that a past investment or acquisition has underperformed. Large impairments at Indian companies frequently relate to overpriced acquisitions, stressed projects or obsolete plant.
Related terms
- DepreciationDepreciation is the systematic allocation of the cost of a tangible fixed asset over its useful life, reflecting wear and obsolescence as an expense.
- AmortisationAmortisation is the systematic write-off of the cost of an intangible asset, such as software, patents or goodwill, over its useful life.
- GoodwillGoodwill is the premium a company pays to acquire another over the fair value of its identifiable net assets, recorded as an intangible asset.
- Revaluation ReserveA revaluation reserve is the increase in the carrying value of an asset, typically property, recorded directly in equity when the asset is revalued upward.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.