What is an Impairment Loss?

An impairment loss is a recognized reduction in the carrying amount of an asset that is triggered by a decline in its fair value. When the fair value of an asset declines below its carrying amount, the difference is written off. Carrying amount is the acquisition cost of an asset, less any subsequent depreciation and impairment charges. It is less likely for an impairment loss to be recognized for older assets, since their carrying amounts have already been substantially reduced by ongoing depreciation charges.

Impairment losses are not usually recognized for low-cost assets, since it is not worth the time of the accounting department to conduct impairment analyses for these items. Thus, impairment losses are usually confined to high-cost assets, and the amount of these losses can be correspondingly large.