We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.

What Are Impairment Losses?

Malcolm Tatum
Updated May 16, 2024
Our promise to you
SmartCapitalMind is dedicated to creating trustworthy, high-quality content that always prioritizes transparency, integrity, and inclusivity above all else. Our ensure that our content creation and review process includes rigorous fact-checking, evidence-based, and continual updates to ensure accuracy and reliability.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

Editorial Standards

At SmartCapitalMind, we are committed to creating content that you can trust. Our editorial process is designed to ensure that every piece of content we publish is accurate, reliable, and informative.

Our team of experienced writers and editors follows a strict set of guidelines to ensure the highest quality content. We conduct thorough research, fact-check all information, and rely on credible sources to back up our claims. Our content is reviewed by subject-matter experts to ensure accuracy and clarity.

We believe in transparency and maintain editorial independence from our advertisers. Our team does not receive direct compensation from advertisers, allowing us to create unbiased content that prioritizes your interests.

An impairment loss is a type of one-time or nonrecurring charge that is entered into the accounting records as a means of correcting the value of an asset that has an overstated book value. The idea is to reduce that book value down to what is considered a fair value, allowing for whatever factors have caused the change in the worth of that asset. From this perspective, impairment losses can be seen as accounting procedures that help to create a more balanced and accurate assessment of the true and current value of any assets held by a company or other entity.

Impairment losses involve the creation of what is known as an impairment write-down. This basically means identifying assets that are currently carrying a book value that is higher than their actual worth. Determining if this is the case typically involves deciding if that current book value is higher than future net cash flows that can reasonably be expected to be generated from the ownership and use of those assets. If that book value is higher, the use of impairment losses helps to reduce that book value back to a level that is considered more realistic and closer to the current fair value of those assets.

Calculating impairment losses involves the use of a fairly simplistic method. The first step is to identify the fair market value of the assets involved. Those amounts are then subtracted from the current book value for those same assets. If there is no difference or the result is positive rather than negative, then there is no need to record any type of impairment loss on any of those assets at that time. There is the possibility of needing to account for impairment losses in the future, based on what the owner chooses to do with those assets next.

From that point, owners may also want to evaluate if they intend to hold and use those assets in the future. For assets that will be held and used to generate revenue in the future, it is important to project those future net cash flows. This will help determine to determine the future value of the assets. That future value can then be subtracted from the book value for each asset. Any negative results indicates the need to adjust the book value of those assets, which in turn means there is a need to log impairment losses.

The difference between that future value and the book value will constitute a loss in terms of the accounting process. For assets that will be held even with the loss, this makes it possible to track the depreciation that the assets incur over time. Doing so helps to position the owner for determining a reasonable sale prices for each of the assets, in the event a decision is made to offer any of those holdings for sale, and manage to any losses stemming from selling those assets for less than the current fair value.

SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Malcolm Tatum
By Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing to become a full-time freelance writer. He has contributed articles to a variety of print and online publications, including SmartCapitalMind, and his work has also been featured in poetry collections, devotional anthologies, and newspapers. When not writing, Malcolm enjoys collecting vinyl records, following minor league baseball, and cycling.
Discussion Comments
By Talentryto — On Jan 28, 2014

Though many people may find accounting to be confusing, it is important to understand complex concepts like impairment losses, especially for businesses owners who must keep track of losses and gains. Impairment loss calculation helps in understanding the true value of assets.

Malcolm Tatum
Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing...
Learn more
SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.

SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.