Impairment
Impairment is a write-down of an asset's carrying amount to its recoverable amount when the asset's value has fallen below its book value; the loss is recognised immediately in the income statement.
What it is
See it move
A retail chain carries a store lease at €2,000,000, but a downturn reduces its expected future cash flows to a present value of just €1,400,000. The €600,000 gap must be recognised immediately as an impairment loss in the income statement, cutting both operating profit and the lease's balance-sheet carrying amount that same period.
The formula
Variables
- Carrying amount (book value of the asset before impairment) (€)
- Recoverable amount (higher of fair value less costs of disposal and value in use) (€)
Recognised immediately in the income statement when carrying amount exceeds recoverable amount.
Variables
- Fair value less costs of disposal (net amount realisable in an arm's-length sale) (€)
- Value in use (present value of future cash flows the asset is expected to generate) (€)
Taking the higher of the two avoids writing the asset down below what it can actually recover.
If you trained under a national GAAP
DE · HGBWhere national-GAAP intuition diverges from the international standard
HGB (German)
HGB frames impairment through the lower-of-cost-or-market principle. Current assets are written down whenever their value falls below carrying amount, and non-current assets are written down for reductions in value that are expected to be lasting. The reference point is the asset's market or realisable value rather than a discounted cash-flow calculation. A distinctive feature is the reversal rule: if the reasons for an earlier write-down cease to apply, HGB generally requires the write-down to be reversed and the asset written back up, though never above original cost. Goodwill is the explicit exception — a goodwill write-down may not be reversed.
IFRS
IAS 36 compares an asset's carrying amount with its recoverable amount, taking whichever is greater: the amount the asset could be sold for after selling costs, or the worth of keeping it in use (broadly, the discounted value of the cash it is expected to bring in). Reversals are permitted for most assets when the earlier indicators of impairment have reversed, but, as under HGB, a reversal can never lift the asset above what its carrying amount would have been without the original write-down. IFRS matches HGB on one point in particular: an impairment of goodwill is final and can never be reversed in a later period.
Edlintics’ own explanatory summary — not official IFRS Foundation or national standard-setter guidance.