Impairment
Also called: impairment loss, write-down
A one-off reduction in an asset's value on the balance sheet when it is worth less than its carrying amount. It reduces profit but uses no cash.
An asset is impaired when its recoverable amount, the higher of what it could be sold for and the value of the cash it is expected to generate, is below its carrying amount. The difference is charged against profit.
Impairments admit that value was lost earlier, often because too much was paid for an asset or an acquisition.
Example
A business carried at ₹280 crore whose recoverable amount is estimated at ₹220 crore is impaired by ₹60 crore.
Learn more in these lessons
- Provisions, contingent liabilities and impairmentsWhat are provisions, contingent liabilities and impairments?
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