Glossary

Impairment

Impairment writes an asset down when it is worth less than the books say — a non-cash charge that keeps the balance sheet honest when value has genuinely fallen.

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Write-down to true worthNon-cash charge

Recoverable < carryingPrudence in action

Definition

Impairment reduces an asset’s carrying value to its recoverable amount when that falls below book value — for example when goodwill from an acquisition no longer holds, or a machine is damaged.

In plain terms

It is an admission that an asset is worth less than the accounts claim, taken as a cost now under the prudence concept. No cash moves, but profit falls.

Why it matters for your company

Impairments can dent reported profit and net worth, affecting covenants. They also signal to lenders that asset values were optimistic. See write-down.